Merry Christmas or bah humbug? 

It's another Monday following options expiration week.  Typically that is not good news for the market.  Beware of any head fake positive opening today.  It tends to be sold quickly. 

OK, so that is what I'd say on a typical post options expiration week Monday.  But this is the week before Christmas and there is a whole new set of rules this time of year.  We have been talking about the very strong seasonal strength of Christmas time.  There are actually still a couple of average to below average days left before it kicks in as it is six of the last eight trading days in December that are really positive - up over 60% of the time.  So how do you plan to play it? 

Things are looking quite dicey but again, will the seasonality trump that?  Will any declines wait until after the holidays?  That is your call and the risk you'll have to take.

I'm still in the F fund and I am still seeing positive short term movement in bonds.  The 30-year bond has made a higher low and it is closing in on a higher high which will put it back into a short term uptrend.  There could be a pause at the 200-day moving average (blue line) if it gets there. 


                          Chart provided courtesy of www.decisionpoint.com

If bonds are up at least modestly this morning, I may jump back to the G fund a day or so.  The G fund is likely to pay the penny gain either today or Tuesday.  Hopefully it will be Tuesday if I do make that move.  I'll know by 10 or 11 AM and I will let you know if I make a move.

The dollar is still looking toppy lately but that doesn't mean it will roll over and die.  As I mentioned last week, I expect a quick move down to the low made in late October, near where the 200-day moving average is meeting the bullish support trend line.  Then we could see a little rebound.  Of course whenever I try to guess this stuff, I am usually quickly humbled.  It's just a theory.


                         Chart provided courtesy of www.decisionpoint.com

I am often asked why I talk about the dollar so much.  Many of you know the that the dollar has a big impact on the I fund.  When the dollar rises, it tends to make things tougher on the I fund.  When the dollar is falling, it helps out the I fund.  That doesn't mean that the I fund will always be up if the dollar is down, and vice versa, but some of you may be surprised just how much of an impact it has.

As of Friday the I fund is up 13.6% for 2005.  During that time the EAFE Index (International funds the I fund tracks) is up 10.9% in U.S. dollars.  But the EAFE in the currencies of the local markets is up a whopping 23.4% this year.  That is a major difference as the strong dollar has wiped out about half the gains of the EAFE index.  Of course the I fund is doing better than all other funds so for me to say avoid the I fund when the dollar is rising may not always be good advice.  But if the EAFE is having any kind of trouble during a year when the dollar is rising, it could get ugly.

To wrap up:

- Stocks are getting very susceptible and any major move higher will be tough to come by in the short term.  But this is the end of December and we have to look at things a bit differently.  Will a pullback wait until January?

- Bonds are on the brink of a short term positive change in trend but are coming up against resistance.  If bonds are up Monday morning, I may move back to the G fund for a day to try to catch the penny gain in that fund Tuesday.  But there is a good possibility that penny gain could come today and I'd miss out.

- The I fund could continue to lead if the dollar does fall to support in the coming days.

That's all for today.  Currently 100% F fund.  Thanks for reading.