INDEXES VS. STOCKS

Quite often I am asked why I prefer index buying instead of single stocks. I do believe I have some reasonable answer for that and here below I am gonna summarize my approaches.

1.       Hard to collect the relevant information

You are aware that I am so bullish on the stock market. But honestly I never buy any single stocks just indexes. Cause I don’t like the luck in the trading and investing. In the single stock trading I see many risk, namely I don’t have enough relevant information about that certain company. Is there any crazy guy in the board, is there any risk behind the curtain, is there any risk on the management ... etc. On one single stocks I cannot see the risks well, but on the indexes I just need to open FT or WSJ and read the relevant information in 20 minutes about DJIA or DAX. You will not find a simpler solution to diversify and reduce the risk with indexes. Honestly I don’t need to know anything about the single companies at SP500, what I only need to have is a general view about the direction of the market.

2.       Volatility

The volatility is much bigger on single stocks than on indexes. You can make a fortune on 3D printing companies this year over 100-200% profit. I am happy if you did that. Or if you bought Tesla or Starbucks you have made over 50% in this current year. But never forget this is an optimal scenario, but sometimes will come the worst case scenario when you can lose 50% easily on some single stocks. Just remember for Apple, Enron, Arthur Andersen, Nortel ... etc. On stocks the volatility is much bigger than on indexes that is the reason why I am buying only index. I can’t do 100-200% per year, but honestly I don’t really want to do that because it is too risky. The flip side is that I cannot afford to lose 50% neither. If you are super lucky, never forget will come the super unlucky days too. That is the behaviour of this business.

3.       Which indexes we trade?

We only forcusing on the flagship indexes and don’t care about the small composites. We trade DJIA, SP500, Nasdaq, FTSE, DAX, CAC40, Nikkei, Hang Seng. There is no sense to trade belgian or greek markets because all the markets are correlated so sooner or later the arbitrage is disappearing.

Those are my biggest reason why I am trading indexes against the stocks. But I have a piece of good news there is one huge common thing. The market is so bullish. So bear in mind and buy the dips.

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The BFM Assets Team.

THANKSGIVING AND BLACK FRIDAY

Today, tomorrow we have a space being a bit relaxed. Today the US markets are closed, tomorrow only half day opened. We don’t expect big moves further in the last two days which rest.

The volumes in US markets yesterday was so light. Nasdaq jumped up again and SP500 and DJIA recovered from previous day diving. If you look at the chart below you see the correlation has gone, the Nasdaq over performed the SP500 and DJIA. That was a good arbitrage deal in the last couple of weeks because Nasdaq had been lagging and now over performing the two others. There is some divergence now.

Take a break for this week and focus on the next week market movements. Don’t forget anybody says it is bubble. Don’t believe them. It is not. It is merely a bullish market.

And what is our behaviour on the bullish market?

• Very bullish or
• Bullish or
• Neutral

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The BFM Assets Team.

NASDAQ IS OVER 4.000

After 13 years the first time traded the Nasdaq over 4.000. The index yesterday closed at 4.017 with a daily gain of 0,58%. The lowest rate was in the last 52 month was at 2936. It is more than 50% gain. That is brutal. So most of investors get started talking about the bubble effects. Just take a look behind the curtain and look at the core facts and try to summarize a bit.

In 2000 at the Dotcom Bubble was the price last time here at 4.000. Let’s look at some data comparing that period and the recent one. In 1999 and 2000 the market was super overvalued. I remember well that time there was a real euphoria, everybody just closed the eyes and was buying like an idiot. That was one of the most crazy bubble in the history of markets. Now is perfectly different. I don’t see the same investor attitude around me.  I don’t realize that the markets are overheated.

	December 1999	Today
P/E ratio	29.7	19.1
CAPE  - Shiller PE ratio	44.2	24.4
Price/Book Ratio	5.1	2.6
Price/Sales Ratio	2.4	1.6

All in all today the Nasdaq is far less overvalued than it was in 1999 and 2000. The market’s current valuation is still solid and seems no extreme at all.

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The BFM Assets Team.

SOME BUBBLES FROM THE LAST DECADES

I love George Soros’s quote about why we surprised when burst the bubbles. He said once “The only surprise is that we are always surprised.”

Frankly in each last four decades we have had some kind of bubbles. We have seen few bubbles during those periods.

• 70’s: there was GOLD bubble price gained from 35USD up to 850USD.
• 80’s: Nikkei went up from 8000 to over 40000, before crashing with 80%.
• 90’s: Nasdaq dotcom bubble index went up from 440 to 5000 – 80% loss finally
• 2000’s: Housing bubble in US, Dubai, Spain, Iceland. Gained 200-500% the prices 

The US stock market crashes happened in 1987, 1998, 2000, 2008. The difference between them each time was that these bubbles driven by different stocks, industries. What is the common thing? It is us, the investors, the human beings with our all irrationality, inconsistency and in some case incompetence. Look at the chart below how big is the correlation between three crisis 1929, 2000, 2007. That is shocking how same we act as a herd.

There is no doubt. Bubbles happen again and again thanks to our common greediness. Plus there need 4 other things occur bubbles:

• Strong fundamentals behind the market 
• Optimism about the new age 
• Huge liquidity of cash 
• People start to think this time is different 

We are recreating in each decade a new bubble because we love the hypes. The only problem is that. Most of us don’t make money in bubbles but make a brutal loss. We have to learn how to avoid those losses.

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The BFM Assets Team.

AGAINST ALL THE BUBBLE CONCERNS...

The SP500 is up 9 points, Dow up 70 points. What a crazy rally today again. The Iran nuclear agreement pushed higher the prices. On the other side pushed down the TWI oil with 1%.

The Citi’s Panic/Euphoria level close the red level which has not seen since 2007/2008.

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The BFM Assets Team.

 

HOW CAN YOU BE EASILY BETTER TRADER?

Forget the past. I would say forget the losing position and forget much faster the winning one. Why? Because our memory is our biggest enemy. Keep us focusing on the past not the current position.

According to one Stanford's study in 2005 it proved one very impressive thing. Scientists gave a group of participants $20 each. They were then made an offer: You can flip a coin up to 20 times. If you lose the coin toss, you owe $1. If you win, you get $2.50. Everyone in this situation should make as many tosses as possible, since there's a 50/50 chance of accurately guessing a coin toss, and the reward for winning is far larger than the penalty of losing. But the researchers found only one group of participants willing to make large numbers of tosses: Those with a lesion in the area of their brains that controls emotion. Participants with normal brains threw in the towel after flipping a few losses in a row. People don't like losing money, and even if you know the odds are in your favor, a couple losses will turn you off. But those whose brains suppressed emotions kept on betting, regardless of past losses. Not surprising, given the odds and payoffs of the coin-toss game, they ended up with more money.

We're as human beings more likely to remember negative, emotional events than ordinary or positive ones, especially in the short run. So our memory is one of the most frightening things in trading.

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NIKKEI FORECAST FOR 2014

Since last October when Nikkei violated the long short term channel has been gained more than 70%, since this January more than 50%. Since end of this May Nikkei has been been only ranging and consolidating. What seems now clearly there is a key resistance at 15.700 now the price is fluctuating around 15.450. Can be sure if that resistance is taken the bullish run continues further. We are so close for that level, less than 2% so it might happen any day. If it is broken the next target for Nikkei must be the 20.000. Still we are far from the historical high which was above 40.000.

And what is the realistic scenario for 2014? There are some argues about this year 50% gain means the market is overbought, meaning bubble. I am convinced about that is not bubble yet. It is only a kind of strong run after almost two decades of falling market. Normally after this sort of bullish year in the following year keep going the bullish upside run. Maybe not that strong as this year but still produce nice returns.

The upside potential is still strong in 2014. So the long term opportunities are very good regarding the Nikkei.

Fundamentally there are few remarkable datas:

• The growth – this year Japan GDP is in 3,5% plus 
• Inflation – the prices after decades started to rise again, which boost the corporate profits up 
• Aggressive asset buying program by BoJ – which offers cheap money for the market 
• P/E ratios are big time lower than in US – most of company shares are good bargain 

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DO WE HAVE TO LOVE OR HATE OUR PORTFOLIO?

Literally the question is that if we trade oil, gold, dollar, IBM we have to create any mental commitment to those assets or not. My bet is better not to do that.

I have read once from a trader who said. We have to only love our dog, wife, children, but not our stocks. It sounds reasonable, but what is the real sense behind this sentence.

As we are human being we are weak and mentally easily manipulated. Let’s say you own some oil long contract and you are convinced that the price needs to go up. Maybe you have some fundamental arguments maybe only your sentiment is bullish. But here comes the problem since the computer and internet take off after ’80s there are hundreds of articles within only one day on the internet about oil. So the next day you decide you want to be well informed and knowing everything about the oil. So you start reading. After few hours you filled up with miriads of new informations and get frustrated and not so sure about your oil long anymore. Too much information makes you unsure about the simple thinks too. This is a conformity bias. We don’t want to be different than others. And if you read that everybody is shorting the oil you think the sell side is better. So you cover your long, just for being the part of herd.

The other big mistake, I call this unreasonable commitment to our assets. The point is that we love our assets what we own. If it is not making profit anymore for us like Apple has done in the last 2 years we are still holding because we created some sort of mental relationship with that investment. Personally I cannot afford to build up any personal relationship with my investment because it is business and it is about money and profit not about the love.

Let me give you an example. Most of investors don’t buy no name companies just buy the flashy stocks like Apple, Starbucks, Facebook, Twitter...etc. They can be crazy about these corporates and still holding when all the rationality dictates to sell. The point is that most of those trendy companies usually underperform the market. Cause they are super expensive.

The most profitable shares are unknown for most of us. The big mass don’t want to own them. Because they don’t know and in some cases they hate those without any rational motivation. But these small cap companies are much cheaper and deliver higher performance.

So what I suggest close out all your preconception and just analyze each company with cold blood and head. Cause the investment is more serious than use our emotions. It is about money.

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THE COMMON GAME NOW IS THE GUESSING. BUBBLE, NO BUBBLE, BUBBLE, NO BUBBLE...

Each day I can find hundreds of articles, blogs which are concerned about that market is in bubble, the other half is positive about that is not yet a bubble. I belong to the no bubble school.

Why? Very simple. I have 6 arguments only.

1. If not yet everybody is optimistic is good because the sceptical’s potential buying power will later come in the market, at the final parabolic phase. 
2. In bubbles everybody convinced that nothing wrong can happen. Now is not true yet. 
3. The market just broken out from 14 years ranging period last month. 
4. There is cheap money out there. The interest rates are in historical low levels. 
5. Ther is QE which protects the market from the big correction, over 15-20%. 
6. Fundamentally the US corporates are more profitable then ever. 

Those observations of mine don’t mean could not come any correction. It is always possible. What I only wanted to emphasize the market is tremendously bullish. And in the bullish market only three positions we could possible have:

• Very bullish 
• Bullish 
• Neutral 

Yesterday the Dow jumped above 16.000, SP500 went up to 1800. Both are all history highs.

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NIKKEI OVER 15.000

Last happened this remarkable and impressive break out. First six months of this year jumped up the Nikkei with more than 50%. Since last November gain is more than 75%. Started the index this January below 10.000 and last week closed again after this May over 15.000. There is a strong buying sentiment.

If we look at the 20 years historical chart we could discuss about not only lost decade, but lost two decades in terms of Nikkei and Japanease markets. In 1989 the historical high was over 40.000. Recently we are far far away from that level. In big picture the Nikkei is legging behind the US and most European markets. They are at historical record levels, but not the Nikkei. This arbitrage might give us good opportunity on the buying side. The inner behavior of indexes that they are moving in correlations so the Nikkei needs to catch up the gap between itself and the US markets.

Possibly can occur 2 different scenarios:

• Nikkei gets start to go up stormy or 
• US markets start to come off 

My bet is the Nikkei is gonna catch up cause it shows a brutal strength, only last week gained more than 7,7%. This is best week so far in this year.

This morning made some corrections the Nikkei Composite, but I am not concerned about that. This is a normal process of the market movements. The weaker Yen against the Dollar is also supporting the bullish stock market.

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MARX AND THE MARKETS

Marx was right in terms of crisis again. The last Credir Crise since 2007 was the biggest crunch since 1929. Marx’s Law of Fall of Rate of Profit perfectly describes the last and current years process of capitalism.

What is the correlation between Marx’s Rate of Profit Theory and the markets? Marx analysed the corporate profitability and cyclical crisis of capitalism. He proved that if the Rate of Profit starts falling in the capitalist system it is the bell of next big correction and shortly the crisis come. We had a brutal profitability drop between 2007-2009 in all industries across the board. From that recession US has recovered in fastest phase, but many regions like China, Russia still suffering from that.

But what is the rate of profit, which is an indicator of crisis?

= Rate of Profit
S – Surplus Value. This is the source of profit.
C – Constant Capital. Machinery, office, paper, printer, all expenses excluded wages ... etc.
V – Variable Capital. Expenses of wages.

If the Rate of Profit gets falling that means the certain company or the whole industry or the whole economy profitability is getting smaller. Why? Because the C – technology is getting more expensive and V – wages are higher and higher. When we are in upward period of cycles and the development is over all, the wages are improving, but after a certain point it starts to affect on the Rate of the Profit. The increase of expenses side reduce the profit. Above a critical and certain level needs to be reduced the salaries or make the working days longer or if necessary workers are fired. The rate of unemployment initiate to increase. That is what we saw in 2007-2010 period. The rate jumped up from 5% to 10% and by now normalized between 7-8%.

In the period of the deepest crisis the purpose of companies is reducing the C (Constant expenses) and V (wages). On wages the cut the costs back as you see above and on C they start to use more efficient technologies which can reduce the daily process expenses. The options are finding synergies inside the company, no travel expenses with video technologies, more computerisation.

After those steps the S gets start to increase again and parallely during the crisis the cost of C and V are lowering. In the Marx’s Theory the Rate of Profit starts to recover again during the crisis, which we see now in US. The american flagship companies like Apple, BoA, Starbucks, Tesla, Facebook sitting on more profit and cash then ever. The level of profitability is on historical high. And, how effect on the markets upon those data. Just look at the chart below. This is more than obvious. It is a brutal five years bull market.

All in all Marx was right in terms of the Rate of Profit. It has been recovered again and the crisis is over. This is cycle behaviour of Capitalism. The Capitalism is the most virulent system in the history. Learn always from the crises and reborn again. As Schumapeter called this event creative destruction.

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WILL BIG CRISIS 2.0 COME?

History repeats itself or not? Most historians are arguing this popular statement, they are concerned about any recurrence. But I found some remarkable correlation between the Big Crisis 1.0(1929-1933) and the recent recession since 2008. Big Crisis 2.0?

This whole article is only a funny way of chart analogies, so don’t plan on that too much.

The common point is we as human beings act mostly like a herd. That is one of our biggest trading and investment bias. We are the same greedy as people were at 1929 and have exactly the same fear as it was in 1929. We never change and never learn anything from our failures and mistakes. Those charts show us some analogies. Could we read the future from those charts?

This chart below by Zerohedge shows the history repeats itself so far. The period is 1930-1942 and 2007-2013.

In the last 6 years the similarity is shocking. This is the good news. The bad news is that in 1939, 10 years after the crisis the 2nd World War erupted.

And here we can find a brutal correspondence in the rates.

And what happened in 1936-37, after 7 years the start of the crisis 1929? At first the market started to decline and dropped all in all 40% within 3 months. At the beginning just dropped 15% and then recovered and back tested the previous top. And finally plunged 40% and just started again recover after the war.

This is not an optimistic scenario in terms of war, but the good news is the History never repeats itself.

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The BFM Assets Team.

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WHEN COMES THE 10% CORRECTION?

Honestly, I don’t have a faintest idea. But... there are some remarkable statistical datas which we can use for analyzing the current market situation. The trader’s Bible says in each 30 month needs to come a correction which is bigger than 10%. Let’s check it out a bit. Is it a correct observation or just a kind of urban legend. I mean „market legend”.

The markets have been massively soaring for more than 530 trading days without any double digit correction. This period has with us for more than 2 years now, since August 2011. Still the optimism around the floor is rising. Between 2003 and 2007 the SP500 didn’t tumble with double digit neither. But that rally lasted for 1153 trading days. There is another longer no correction period between 1990-1997 for 1767 trading days. So this 530 days is not unusual at all.

I know it seems for every one this rally is too strong and long but in bigger view it is not extreme at all. It is only an observation bias. If something seems long enough is not a reason for the correction will come. In other words if the bulls are really strong doesn’t matter what we beleive or what is our expectation. Because Mr. Market loves to do the unexpected things.

Fundamentally I would place one question. Why we scared about huge correction if the US GDP data +2,8% shows the US economy is in perfect condition. And the interest rate is at historical low. These two conditions can be enough argument being bullish for me. And if against all these good macro factors the market finally decide to drop, still there is the FED QE program which can soften the noise of correction.

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The BFM Assets Team.

SOME RATIOS TO UNDERSTAND BETTER THE MARKET.

We have some ratios to analyze and understand better the past and the present – not the future – on the market.

We have the following systems to analyze the SP500.

• General P/E ratio 
• CAPE – Shiller Cyclically Adjusted P/E ratio 
• Tobin’s Q ratio 
• Cresmont P/E ratio 
• The Market Cap to GDP. Buffet's favourite valuation measure 

We could pick up any of different ratios. It is free choice. Here below I have collected together some nice chart how they interpret the recent bullish market. All the different ratios want to answer to the same question. This is a bull market or a secular bear market? There are a bit different in intrepretations but there are some significant correlations either.

General P/E ratio now is at 19,48. Which not extreme at all, but not cheap neither. But if the inflation comes will be downcreased easily.

This chart below shows the Tobin’s Q ratio. The general parameter is if the ratio is over 1 the market is overbought, if below 1 is oversold and undervalued and shows good option to buy. Now this ratio is at 1. So the market is neutral currently. In 1999 was at over 1,4 and in 28 at 0,7. Now we are in the middle. The long term median is at 19,6.

The CAPE ratio by Shiller is at 24,4, the historical mean is at 16,5. So the market is overvalued. In 1999 this rate was over 45 and in 2008 was at 12.

Cresmont P/E ratio here below shows in historical perspective the regression line is constant bullish since 1870. We are above the historical mean but not extremely. In 1999 the rate was at 33,8, which is now at 23,9 and the lowest point in 2008 was at 12,3.

In my humble opinion all chart above tell us that the market is not cheap anymore, but I would not say bloody expensive. But everything is relative. What seems today expensive might be seen tomorrow cheap. All in all in historical view the SP500 is still in bullish sentiment and does not show yet that the bubbles burst.

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The BFM Assets Team.

TRYING TO OUTGUESS THE MARKET MOVES

This is a part of human nature to find answers for uncertain things. We always love to create ideologies why the market needs to go down or why it needs to go up. We don’t like the uncertainties in our life, so we hate this in trading too. I have predicted many times in my first period of trading career. But I don’t do that anymore. Why? Because it is not possible to predict the future, we are only guessing. As John Bogle’s old runner colleague said „NOBODY KNOWS NOTHING”.

Most of traders are looking for gurus who always tell the truth. They can’t accept the fact Mr. Market more complex than could be ever forecasted. Beacuse it is dynamic random system always with at least two scenarios.

We use different forecasting systems. Fundamental analysis or technical analysis with hundreds of indicators. But I have never met a person who had 100% hit rate. Nobody knows what holds the future. All type of analysis only tell us what happened in the past or what happens now. But any of them not able to show the future. As George Soros once said ”It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." That is the point. I never care about I am right or wrong. What I only care about is the size of the profit or the loss.

To place a good investing decision we have to accept the uncertainty of markets. If we are honest about it we won’t fight with the market anymore. I found a great statistics that there are no gurus. Mark Hulbert of the Hulbert Financial Digest analysed the top-performing newsletters from 1986 to 2010. They found that they underperformed the SP500 by 2.6%. But still today many investors use them and convinced they have found the way to reduce the uncertainty of Mr. Market. They create a fake sense of certainty.

There is another problem with the gurus, signals and recommendations. You are able to avoid the responsibility for your decisions. You are pushing away that. If you make money you say ok that is great I knew that. But if you lose you will say the bastard guru is made a bad job. So it is not your mistake but the guru, signal or newsletter’s mistake. This is typical approach by human investors.

Accept the fact that Mr. Market is more complex than anybody can predict and realize that no one knows exactly what market will do. As Warren Buffet said “I don’t know what the market does next week or next month or next year. What I only know what will do in 20 or 30 years.”

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The BFM Assets Team.

FIRST BITCOIN ATM MADE 100K CAD TRANSACTION IN 8 DAYS OF OPERATION

That Bitcoin ATM in Vancouver in the first 8 days of operation conducting $100,000 (CAD) worth of transactions. This number issued by Robocoin, that firm is the producer of that machines. Robocoin goal is to make Bitcoin accessible for everybody around the world. They just sold five machines for $20k each. The plan is to settle new ATMs in Toronto, Montreal, London and Berlin.

The very first of Bitcoin ATM was launched in a Vancouver caffe last week. The only requirement that you use biometrics in order to access the machine, a palm scanner. But there is another company Lamassu which also building Bitcoin ATMs, the difference is no require biometrics. I do believe these Bitcoin ATMs are break down the obstacles being more popular as an alternative currency. Recently the users mostly use for buying in 80% and just 20% wanted use for selling their Bitcoins. The transaction fee is quite high 3-5%.

Currently the Bitcoin price is at 330$. It looks a bubble but everybody said the same at 100 and 200 so we never know what is the highest price.

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The BFM Assets Team.

NO RISK, NO RETURN

In other words risk less means return less. Many of investors, traders are scared to pull the trigger. They scared to enter into the market, because they lost at least once before in his trading career. Most of the traders are remembering well for 2007/2008 Credit Crunch’s massive losses. So most of us still fear to buy stocks. This kind of investors missed out the last five years opportunities and the rally.

Blackrock released a survey which shows clearly most of investors are afraid, remembering well the 2007 crisis. This survey says 48% of assets still held in cash, 18% in stocks and 7% in bonds.

The typical investor recently is ultra conservative, still not buying stocks. “The dramatic stock market decline from October 2007 to March 2009 appears to still linger in investors’ minds,” says Sarah Holden. The SP500 since January gained around 24% which is brutal, but in longer term in a decade the SP500 only did 5% per year. Which is ironically not enough for a normal investor. That is funny. They want to make more than 10% per year.

What I recommend to investors now. Pull the trigger because the bull market started 4 years ago, that is true. But if the bulls are really strong they can exist much further than 4 years. After the post war period they gained for more than 20 years.

Now we are at Schiller PE ratio 24,4. At the Internet Bubble 1999 this ratio was over 40. We are still far from the bubble sentiment. The median is around 16, and we are above that level but not extremely.

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The BFM Assets Team.

JESSE LIVERMORE - LEONARDO OF TRADING

Maybe some of you are aware I am a great, great fanatic of Jesse Livermore. But I am only a small and fake epygon of him. But I learned most of my trading knowledge from him. And I extremely sure that most of the contemporary traders are effected by him. He is not ignorable at all. I don’t fully believe in Thomas Carlyle’s Great Man Theory, that the History is the result of actions of heroes and geniuses. But in history of trading I do believe great traders and investors like Livermore’s life and career give us guideline how to trade and they changed our market knowledge.

There is never enough story about him, so I recommend that article for today by Eddy Elfenbein.

www.crossingwallstreet.com/archives/2013/11/the-devil-in-jesse-livermore.html

and a video about his life:
http://www.youtube.com/watch?v=tz_Asqh8pbs

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The BFM Assets Team.

BE FEARFUL WHEN OTHERS ARE GREEDY, AND BE GREEDY WHEN OTHERS ARE FEARFUL!

In 2007/2008 I will never forget everybody was concerned and desperate, including me. That was a real scary period of investors. Seemed that here is the time the collapse of Capitalism. I know one guy who was contrarian and started to buy in the dips.

Yes, he is W. Buffet.

He bought stocks for his personal account. Many of us did not follow him. He said in 2008 “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” ... “And most certainly, fear is now widespread, gripping even seasoned investors.” And he was absolutely right about the fear. Most of us were fearful and paralyzed to buy anything.

Since that time the DJIA has gained with 88% and is on new historical high, the SP500 has doubled and it is on new records too. When Buffet recommended to everybody buying most of us left the market for many years and just now starting to get back. The typical average american investor keeps their 48% money still in cash and just 18% in stocks.

And what is the common sentiment now? There is a feeling of „We missed the rally” and recently and slowly the investors get back into the market. American investors so far this year have invested $106 billion into equity funds.

My lesson from that story is the following. Be contrarian. Buy when everybody sells and sell when everybody buys. That is the art of the investment.

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The BFM Assets Team.

IS THE 2013 BULL MARKET EXTREME IN HISTORICAL WAY OR NOT?

Most of the investors are concerned and sceptical about the future of this bull market. They think the market is generally overbought and shortly needs to come a huge correction. Below I want to prove that the markets are not in extreme zone. This year 24% SP500 gain is absolutely not unique.

If you look at that chart right below you can find the 24% is not special at all. In many many years were more than 24% gain. I know it happened only twice since 2000, in 2003 and 2009. But it might be a good signal. If something not happen so often it means the possibility is higher to occur again. The highest gain was between 40-45%. It is not possible to hit that percentage within 2 months remained but might be over 30% easily. One of my rule says if some trend get started we never know where and when ends. Remember that.

All in all 2013 is a very typical year for the stock markets. The 20-25% return is second most common data since 1927. Most of the traders are looking forward after this kind of year will be followed by falling movements. The fact is the opposite. Historically seen that after 20-25% return, the market keep continues the gaining in the couple of following years.

If we look at the chart of five years annualized return. The 2013 performance proves the same. From the end of 2008 until now, the return falls back into a common, 15–20% range. Which is a business as usual. So don’t belive that mantra the prices are in extreme levels, it is historically and statistically not proven and not true.

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The BFM Assets Team.

Summary of 2013

The bulls are strong so far and having a great run. Remeber we had Fiscal Cliff in December/ January and  in October Debt Ceiling anxiety. In April Cyprus Bail Out. But the market ignored all the bad news so far. Beside the quiet summer months in each month we saw new historical highs almost in all markets. This week there were new records again.
DJIA up 19%
SP500 up 24%
Nasdaq 30%
Nikkei 50%
Just look at the chart it tells everything (by CNN)

Do we have any warning signal?
Yes, we always have. That is the part of the trading. If everybody would ecstatic it could mean the end of the bull market. Now many analyst and market actors are crying about the bearish scenario. Forget that guys. You know how many times I have heard this same argument in the last 2-3 years and just look at the chart. They were wrong.
They are complained about the PE ratio, abut the bad earning numbers ... etc. They are scared when occurs any correction. But this is the behavior of Mr. Market. Markets are pulled-back and paused always. This is a forever rules of markets. From technical point the market just made a breakout after 13 years of consolidation. So, I do believe this is not the end of rally.
So again and again, the indexes and stocks are traded near record highs.