Why would this be a good trade? Below are my top 3 reasons.
Reason #1:
Based on the last ten years, the "January Effect" has led to stock declines nine out of the last ten years. Much selling occurs in the final week of December and into the month of January. All this selling, causes stock prices to pull back a bit. Below is a chart to illustrate the January Effect over the past decade.
Reason #2:As of late there has been a strong inverse correlation between the dollar and the stock market. If the dollar increases in value the stock market decreases and vice-versa. As such, the dollar has been losing much value as of late, and a short term dollar rally might be in the cards.
Reason #3:
The appetite for risk is going to lessen because of what is happening around the world. There is Dubai defaulting on their debt, which is not too significant if it was an isolated event that did not affect other parts of the world. Greece just recently received a debt downgrade from Moody's, and the Baltic area in general is experiencing many economic and social issues because of the huge deficits they have. Also, Spain just received a debt downgrade from Moody's. These occurrences are not isolated to the countries with which they happen, there will be worldwide effects from these issues with debt whether it is big or small.
