2007 has come to a close. The Santa Claus rally didn’t really do much this year and we ended on a down note.

The RUT closed the year at $766.03 down ($5.73) for the day. All of the other major indexes shared similar performance for the lackluster close of the year.

Overall, 2007 was a pretty good year. We’ve seen volatility, measured by the VIX, come back and hopefully it will stay around for a while! Volatility makes for more time value in options, more time value means more premium which in turn should lead to more PROFITS!! Given all of that, personally, I’m happy that volatility is back.

Of course all of the major trading rules still apply. We still have to do proper analysis of the trades and ensure that he risk is appropriate for the reward. More premium in the option prices means that we should be able to move further way from the current price of the underlying when opening positions, creating more profitable trades. Not only can we move further away, it is very possible to make some great near term trades as well. The rules become very important. Trading by the rules means long term profits!

Going forward…

I’m still bullish on the overall market. I don’t think that we are through the end of the current credit crisis, and I expect that will continue to drag on stocks, especially in Q1 2008. However, I would be surprised if at the end of 2008 I’m not talking about what a great year it has been. The RUT, DJI, SPX, NASDAQ and all other major index’s, in my opinion, will see solid gains during 2008.

I’m not going to make a percentage prediction, however I do think it will be a bumpy ride to get there!

Wednesday January 2nd 2008 marks the first day of the 2008 trading year. It should be a fun day with the fed releasing the minutes from their December meeting. If inflation is a key theme to the minutes, it might mean a rough day in the market. Even with hawkish commentary from the fed, I think we have a few more rate cuts ahead. While I think it would be dangerous to get back to the 1% rates of the last few years, we need to get down a bit from the current rates to help clear up the lending and credit crisis.

Anyhow, I hope your 2007 was as good as ours! Good luck in 2008 and remember - Trade Smart!

Categories: Investing