The end of year trading is dominated by two forces, none of them fundamental in nature to companies’ economic prospects:
1. Window dressing – fund managers do not want to be seen with a year-end holdings of market “dogs”;
2. Tax loss selling – people that jettison positions in their portfolio with unrealized losses so they can harvest the capital loss for the 2010 tax year. Correspondingly there will be some supply at the onset of 2011 of 2010’s gainers.
This is probably why I have not been writing lately – I’ve been drafting up the 2011 outlook.
Since the last two weeks of December are usually a write-off, markets are more illiquid than usual. Retail investors can take advantage of the corresponding price swings to add or subtract positions if such swings are unusually sharp.