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Monday, December 27, 2004
Market Recap
It was a lackluster day on Wall Street as the indices trickled down on some of the lowest volume of the year. This low volume is not surprising as some traders extended their holiday week and were absence today. With no volume to speak of, the market drifted lower toward the end of the day causing the Dow to close down -50 points. The Nasdaq and S&P were down -6 points and -5 points respectively. The price of oil took a big drop today falling almost $3.00, but there was no reaction from the stock market. Normally, a drop of that magnitude in crude prices would send the Dow up over 100 points taking the rest of the market along for the ride. But because many traders are still on vacation, the volume was not there and buyers were nowhere to be found.
End of Year Positioning
This lack of volume may continue for the remainder of the week, but it should increase to very heavy volume starting next week - the first trading week of the New Year. It may be wise to position yourself this week, in anticipation of a big rally next week as new 401K and IRA money comes into the market. All the tax loss selling will have been completed by next week, so the stocks that have been beat-up this year may not fall anymore since all the sellers are out. Big winners this year may see some selling early in the new year as investors who have put off selling until the new year to avoid paying taxes this year may be selling and to take a profit. By waiting until next week to sell their 2004 big winners, the tax bill will not be due until April of 2006.
Settlement Day for Tax Loss Selling
We will be covering our tax loss shorts tomorrow and the longs will be sold by Friday. We have held some losers and this is the week we will finally clean up the bulletin. All trades will be recorded in the official trade record and will be listed for the record when the alerts are sent. The following article will explain how gains and losses should be handled for tax purposes:
Question:
What's the last day you can sell your stock and still report the gain or loss in 2004? The answer is December 31, 2004.
Trade Date Controls
When determining what year you sold your stock, the trade date is what matters. This is the day the transaction took place on the stock exchange. If you contact your broker on December 31, you can complete a sale in 2004 if your broker executes the trade that day.
Settlement Date
Stock market trades generally settle a few days after the trade date. This is the day shares and cash actually change hands. But the settlement date doesn't matter for purposes of determining when your sale took place. If your trade date is in 2004 and your settlement date is in 2005, it's a 2004 sale.
Different Rule for Short Sales
If you're closing a short sale, any loss you have on the closing transaction is treated as if it occurs on the settlement date, not the trade date. That's because delivery is generally the event that closes a short sale. If you need to report a loss from a short sale in 2004, be sure to act early enough so the transaction settles by December 31.
What about gains from short sales? A June 2002 ruling from the IRS says the constructive sale rule applies when you close a short sale at a gain. That's because for the few days between the trade date (when you're treated as having bought the replacement shares) and the settlement date (when your short sale is actually closed) you're long and short the same stock. That means you have to report gains from short sales on the trade date, not the settlement date.
Holiday Season Bulletins
There will be no bulletin on Thursday December 30, because the market is only open for only a half day trading on New Year's Eve.
Holiday greetings from TWPD
From all of us at TWPD, we hope you all have a wonderful holiday season with your family and friends. We would like to wish all our members a very Merry Christmas and Happy New Year. May 2005 be a great year for you and your loved ones.
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As always, thank you for your support past, present and future! Have a great night everyone; we'll see you all Tomorrow evening. |
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