S&P BREAKOUT

Huhhh. Finally...happened. It was tough, wasn’t it? After 8 days testing and hanging around the 1,850 level yesterday made the breakout and the futures are still stay over that key level. That elusive level seemed pretty strong resistance for almost two weeks. Today or Monday might be a backtest of the 1,850 support level, but the long trend now is clear. In this bull and bear battle, the bulls have won. The market from now wants to keep moving upward.

As we called in our yesterday blog that was the money burning period and now Mr. Market is in trending gear again. That sounds good. Honestly we should be happy and thankful for the last two weeks flat markets, against the horrible political news from each corners of the globe there are massive political instabilities. That was a good sign if in those turbulence days the market didn’t dive at all. In bigger perspective that ranging market was only a noise in the bullish uptrend and we are going to laugh on it in a few months.

You will see the following in the coming couple of weeks and few months:

• Nobody will care about the turbulence in emerging countries – Argentina, Ukraine, Turkey...etc. The market will totally ignore the emerging market headache. 
• Our target for S&P500 is 1,950 in the following months.
• The next few months until June – the summer vacation season - will be so eruptive and very bullish, only occurs some small correction for few days.

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The BFM Assets Team.

MONEY BURNING MOOD

Yesterday all US indexes did nothing. Except Russell2000, it could gain up to historical new high.

• Dow +0.11% 
• Nasdaq +0.10% 
• S&P 500 -0.01%

It is a typical scenario. The market now is hesitating and don’t know yet go up or go down. The volatility is huge during the trading session. The futures out of open trade are pretty tight, but with the opening bell the nervousness and volatility jumps up to high levels. The market is in yo-yo mood. By the end of the day doing nothing, finishes at the same level, but during the trading session the investors pushing up and down the prices enormously. I talked with some day traders in the last couple of days and all of them are freaked out because the volatility killed their systems. This kind of choppy period of the market we have to me more cautious as usual, don’t be burned out. The problem for most of the traders with these burning days they want to catch the market and make short and easy money. But it is not possible. They get in and stopped out. Get in again and stopped out and again and again. And, they continue until the money is shrinking enough and they don’t have enough money when the real trend will occur. This is a typical money burning period.

How long it takes this burning mood? Might be some days or might be few weeks we never know. The clear indication of the end will be if the SP500 close clearly over the historical high. But, now the momentum is pretty week and Mr. Market wants to make the investors frustrating and lost. After a period of this hectic trading, many investors will say – enough now. At that certain day will the market go up to new highs.

These trading days more about the strong nerves. We have to gnash our teeth and only trade when the real trend occurs. Don’t do any scalping or try to catch the top or the bottom. You can’t do that.

The VIX index also show some increase in volatility.

The BFM Assets Team.

DO WE REALLY NEED FORECASTING?

The great question why we need forecasting? Because we want to beat the market, it’s that simple. We want to own a super profitable portfolio. And, we do believe that there is somewhere in the planet a guru who knows better what holds the future than us. That is the reason why we are reading forecasts.

But is really out there any good forecaster? I doubt that.

There is a research by FED of Philadelphia which studied the professional forecasters between 1968 and 1989. The data show clearly in most of the cases their indication was contrarian, happen the opposite. If they forecasted bull market bear market came and vice- versa. These experts always work from yesterday data and want to forecast tomorrow, it is impossible. We are only guessing. That is why they have mostly wrong conclusion.

In 2013 January according to Bloomberg Wall Street Firm’s 50 stocks recommendations, the companies with the most sell ratings outperformed the market by a median 25%. And, the most buy ratings underperformed by more than7%.

Last year the SP500 made a great rally with 32% gain and closed the year at 1,848. In 2013 January the best Wall Street analyst said the price could hit the 1,615, it was Citi. Wells Fargo forecasted 1,390points which mean they believed in a real falling market.

Why they are doing further this bad quality job? Because they need to do that, there is a huge demand on the market for that nice marketing staff. We as investors love to hear brilliant ideas from smart analysts and companies.

The BFM Assets Team.

GREAT WEEK START. S&P500 HAS NEW ABSOLUTE HIGH.

It is true that finally ends the trading session right below the record, but in the middle of the session hit 1,859 new historical high the SP500. It was up with 22 points intraday. Gained 11 points finally and finish at 1,847, just right below the 15th of January record at 1,848. The SP500 turned into positive this year, the Dow is still in negative in 2014.

Here’s a list about yesterday and tonight gains – the green is ruling all around the globe:

• Dow + 0.64% 
• Nasdaq +0.69% 
• S&P 500 +0.64% 
• FTSE 100 +0.41% 
• DAX +0.54% 
• CAC 40 +0.87% 
• Nikkei 225 +1.44% 

First time the SP500 could not close on new historical high, but very close. It means the upside momentum is so strong and within few days after some kinds of consolidation the market needs to make a breakout from this level. Which news will push higher the index? I don’t know maybe no news. If the sentiment is enough strong many times there is no need any big news. Without news could go up the market up and makes a break out.

Technically on daily chart we are at the neckline on SP500 and if it is taken, the target would be at 1940. Sounds great, isn’t it? I don’t have a faintest idea when will happen. I am more modest than Mr. Birinyi who forecasted 2000 level on SP500 this year. That could be, but first needs to hit the 1,940 target.

The BFM Assets Team.

BEHAVIOR: RISK ON

Bullish sentiment rose last week pretty slightly, according to AAII’s report. Individual investors are more bullish again.

This is the lowest bearish level sentiment since 16th January this year, when the SP500 hit the all-time high.

The reason is simple why they turned in risk on mood again. The market made nice rally in the last three weeks. The avarage small investor is lagging the market’s moves with one or two weeks phase. Bear in mind that flows mostly follow the market, not vice versa. So it is more contrarian indicator not an indicator about the future movements. The investors love to throw their money into that asset class which was performed well during the prior week.

The housewives came back to the market after the six weeks of correction in January and in half of February. They streamed mostly their savings into the US, EU and Japanaes equities. The risk appetite is on rise again and majority if investors are in risk on mood.

The BFM Assets Team.

ARE YOU LOOKING FOR A GOOD BUYING OPPORTUNITY? BUY THE NIKKEI.

Tonight made the Nikkei a fascinating rally which makes me hmmmmm:

Nikkei 225 14,866 +413, 2.86%

In the whole trading session the momentum was so bullish and closed the price on the daily high. That is a good indication for potential further gains and shows the severe uptrend. Today erased the whole last four days losses and close the week with 3% gains and bounced back a nice positive territory. The investors are back in the buying mode.

Since 1st of January the Nikkei dropped around 8,7%. Now it seems us bargain the price. Why?

We have some reasons why you should buy the Nikkei. There are many fundamental reasons like:

• The BoJ wants to continue the monetary stimulus, to hit the 2% inflation target
• The inflation is increasing
• There is a strong uptrend momentum in USDJPY
• The GDP is over the world average with 3,5%
• The Japanese economy continues to heal nicely and this year will undoubtedly be good
• The Japan P/E ratios are at far lower levels than the US ratios

Technically the index seems so oversold. There is one of the most hated and unpopular index recently. This is a pariah index and nobody wants to own it. But after the 8% drops so far this year we see technically some inflection points. End we are anticipating nice rally for 2014.

Major US indices and Europeans are close again to the historical highs and erased the six weeks loss in 2014. But the Nikkei is still undervalued and lagging couldn’t recover so far. There is a good arbitrage deal to buy the weakness because we are sure about the Nikkei will catch up the other indices. Meaning 20-30% gains this year, at least.

The Nikkei closed above tonight the 14,777 resistance level which was a breakout and now the area is opened to the next resistance level at 15,130. And, there is another bullish pattern that the lowest points are higher and higher.

The BFM Assets Team.

ARE THE MARKETS EFFICIENT?

One of my professor at the university gave us some advice, which was shocking and so disappointing first. He said the markets are basically efficient and in long term we cannot beat the market. Maybe we could have some good years and then some bad years so the performance couldn’t be over the market’s performance. No one can consistently outperform the market over time. If someone is outperforming, than someone else is under-performing. I was not happy when I heard that statement. I was thinking about Warren Buffett, George Soros, Jesse Livermore, Ray Dalio, John Bogel, Stanley Druckenmiller, Jim Rogers, David Tepper, Peter Lynch, Paul Tudor Jones, Richard Dennis and my question was obvious. If that Efficient Market Hypothesis(EMH) is right, as my professor said how the great investors could beat the market each year in the last 4-5 decades.

The EMH theory says the market is just a wisdom because the market incorporate all relevant information within seconds and reflects also on information. I doubt that, in my view most of the cases the market is wrong and not efficient. The market loves the extremes which impossible to analyze by EMH. They say the market is rational. So the EMH school really believes the market in March 2000, when the Nasdaq was at 5100 was rational? I guess they are not sure about that.

The Nobel prize winner Robert Schiller helps me to understand that paradox – with his Unefficient Market Hypothesis(UMH). It is totally against the EMH theory, which is promoted by Eugene Fama, the other Nobel prized scientist. The market sometimes overbought and sometimes oversold, but the relevant information are the same. How could happen that? Because irrationality needs to be in the market. The best traders and investors who are capable beating the market use these weaknesses. The market is more complex and random that the EMH states. There are millions of investors with millions of emotions on the market and we are not able to analyse the human factor. It is fruitless to do it. The markets are irrational as we are as human beings either. The market is highly imperfect organism. Driven by fear and greed of investors.

That is why the EMH proponents offer that just own indices not stocks and hold those positions for years or for decades. As John Bogel does. That is true, no doubt that small private investors are underperforming the market always, the bad news is that most of the professionals do as well. So for them the best solution is buying the indices and being lazy, just lay back and wait.

If you believe that we are as human beings are rational, not emotional and always make calculation rationally without any biases you would love the EMH. Frankly I am more believer in behaviorial school and following the UMH. I don’t believe that the market is impossible to beat. If I just look great traders performance or if I look at our performance:  http://www.bfmassets.com/performance

I love that Robert Schiller’s quote „... just because markets are unpredictable doesn’t mean they are efficient.”

So be optimistic and don’t believe the common mantra you cannot beat the market. You can kill it.

The BFM Assets Team.

DO NOT TRADE FAST; TRADE SLOWLY.

Trading is not a horse race, doesn’t matter the minutes, hours or days only the profit counts. I am sure about that every one of you have had the experience that you made a quick decision and was a horrible losing one and when you were not in the market due to family issues or travelling, you were able to react late, those positions were the most profitable. Right?

Why is that? Because this trading business is about patience, like hunting or fishing. Sometimes we have to wait days or weeks to set up a good position. I know it is boring, but I can assure you it worth.

Generally the fastness is bad in our all lifes. Just think about the fast food. It calls junk. And, you are not able to remember that Jesus, Moses or Buddha were not any time in a hurry. The best things happen slowly in our life, think about that. That is the same in trading. The best and most profitable positions occur slowly. The good positions need time to be superprofitable it couldn’t happen within a day, that is why I am really concerned about daytrading. My all biggest gaining trades took at least one week. The time is the good investor’s best friend as Warren Buffett says. As the English people says „feather by feather the goose is plucked”.

Why is great the slow investment in trading? Because the trend turns slowly in the market. And, honestly we never know when changes exactly. We are horrible marker timers so we have to keep and hold tight our long term positions and wait until the sentiment of the market changes. The bad momentum could turn into good momentum pretty slowly. Sometimes it takes months. Sometimes some assets could underperform for a while and that time we need to have patience and wait like the hunter for the lion.

All in all don’t rush in trading just take your time for decisions. Consider first and then react, there are always good buying opportunities so we never miss anything. It sounds worth waiting for. The good trader need ass not brain.

The BFM Assets Team.

EUROPEAN TECHNICAL OUTLOOK

Due to the closure of US markets – the President’s Day was yesterday, recently I want to make a technical summary for European markets. Monday FTSE gained more than 1% the other indices were doing nothing, just flat, which not bad after two weeks gaining.

• FTSE100 6,736 +72 1.09% 
• DAX 9,657 -5 0.06% 
• CAC40 4,335 -5 0.12% 
• FTSEMIB 20,460 +24 0.12% 
• IBEX35 10,119 -14 0.14% 

FTSE:

Generally the FTSE is lagging. Show some weakness if we compare to the other European indices like CAC40 or DAX. They both are close to their previous historical highs but FTSE is still far from that level. There is a gap between them and might be a good arbitrage option to buy FTSE.

The chart clearly shows that the tops are always higher. At the beginning of this February the FTSE made a bearish trap – marked with the arrow – it seemed wants to fall. But later recovered in a superfast way almost without any correction and made its one of the best one week rally. Our bet is within a week the index will hit the 6.850 level again.

DAX:

The uptrend is not violated since 2012 and extremely bullish the German index. Technically on the chart we can find a reversal Head&Shoulder pattern which gives us a clear indication for the following uptrend. The price is so close to the previous top at 9.750. That is only 100points away from here. Shortly the index needs to hit that resistance level and goes further up to new historical high.

The BFM Assets Team.

CRUDE OIL HAD A GREAT MONTH

Since January 13th the black commodity gain roughly 10% within a month. It has come up from 91,60$ to 101,30$. And, steadily stays above 100$ in the last four days, it happened the last time in 2013 October. Crude oil made a fifth weekly gain in row at NYMEX. Today the floor is closed for President Day so only the future market is opened.

Why is so bullish the oil? There are several fundamental arguments by analysts. The massive cool weather, the most severe winter in US after decades and low storage inventories.

We are long on oil since last December and made more than 10% profit so far. Technically it seamed the WTI last December a good buying opportunity. There has been clear uptrend channel since October 2012. The uptrend has been intact and was just tested at last December and we bought the down side of the channel and still holding positions in oil. Plus we saw a double top pattern which confirmed the uptrend move. In our view the price could jump up to 110$ area, if the 103,50$ resistance level would be taken within a week.

The BFM Assets Team.

NASDAQ NEW HIGH AGAIN

The market is big cap tech driven now, so the Mr. Market behaves well. Nasdaq rose in six days row and finally closed again on new high. Made the longest winning streak since last December. After the weak yesterday US retail sales numbers the market turned green and closed broadly higher. After the disappointing data the first reaction of the market was diving that rebounded so it is a bullish interpretation, if against the bad macro news the market is up.

• Dow 16,028 +64, 0.40% 
• Nasdaq 4,241 +40, 0.95% 
• S&P 500 1,830 +11, 0.59%

This week the optimist is back. The AAII sentiment survey shows the bullish investors are more and the bullish sentiment rebounded. The Bullish sentiment is jumped 12.3 percentage points to 40.1%. This is a five-week high. The historical average is 39.0%.

Neutral sentiment declined 3.2 percentage points to 32.5%. This is a five-week low.

Bearish sentiment fell 9.1 percentage points to 27.3%.

The BFM Assets Team.

OAT, COCOA, CORN, AND THE OTHERS

Yesterday US markets after four days winning streak rally - SP500 made 4% gain - paused for a while. Nothing interesting now so let us take a look at the commodities.

On the commodities side you could make a great profit in 2014 if you had owned some oats or coffee or some other soft commodities. We are bullish since last December on Coffee, Cocoa, Corn, Oil and Gold too and we made nice profit in this January. We do really believe in the good rally in agricultural commodities this year. We are moderately bullish on commodities generally.

The natural gas chart shows clearly the bullish upside strength since the end of last year. Remember, the consensus was the price needs to go down because the US big supply and export will push down the prices. Look at the char. You see, the market always does something else, which is the common expectation.

DO YOU WANT TO EARN OVER 30% PER YEAR?

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The BFM Assets Team.

NASDAQ RALLY

Yes, Nasdaq is the only US index, which is closed on highest price yesterday in 2014 and erased the whole six weeks sell off. The tech index now is up 0,3% so far this year. The 3.6% gain over the past four days were the best four-day streak since June 2012. There is a resistance at the previous top, but within few days it might be taken and Nasdaq will be rebounded and traded over the record highs again.

Us markets extended their four-day impressive winning streak. Yesterday Yellen couldn’t spoil the party all American indices went higher again.

• Dow 15,995 +193, 1.22% 
• Nasdaq 4,191 +43, 1.03% 
• S&P 500 1,820 +20, 1.12% 

Recently nobody discuss about emerging market concerns and the VIX index dropped from 19 down to 15 and in line with the optimism pushed higher all indices included Europeans and Asians too. The European markets rose for a fifth straight day. But the volatility has been increased and in our expectation the volatility keeps with us in the whole 2014.

The BFM Assets Team.

2013 RANKING AND MARKET UPDATE

George Soros is back and did it again. With the $5.5bn return he made 29% profit, which is the second best performing year for him.

Top 10 managers by net gains in 2013, according to LCM: 

1. Quantum Endowment, George Soros, $5.5 billion 
2. Bridgewater Pure Alpha, Ray Dalio, $2.4 billion 
3. Baupost, Seth Klarman, $4 billion 
4. Paulson & Co., John Paulson, $2.6 billion 
5. Appaloosa, David Tepper, $4.2 billion 
6. Lone Pine, Steve Mandel, $5.2 billion 
7. Brevan Howard Fund, Alan Howard, $500 million 
8. Farallon, Tom Steyer, $3 billion 
9. Viking, Andreas Halvorsen, $4.5 billion
10. Moore Capital, Louis Moore Bacon, $2.5 billion

Market Update:

As we forecasted the DJIA took out the key resistance level at 15.750. The uptrend now is clear again and in longer perspective the market hasn’t violated in the last six weeks the bullish trend. Usually the market goes up like an escalator and down like an elevator, but seems to me this is different now. The two days rally last week deleted the 50% of six week correction and in row the last three days in the DJIA closed at the highest daily price.

Today expectation is that after the yesterday consolidation but slightly green day, we are going to have a strong bullish rally today. The upside potential is serious now and the first target is 16.000. Most of the investors left the market in the last couple of weeks. Why? Because they moved to the bond market right before the stock market rally got started last week. They act like the cat on the hot tin roof, always in move and try to be smarter than the market itself. Timing the market is a fruitless effort so don’t do that just hold your long position on DJIA or SP500.

This morning all Asia indices are in green:

• Hong Kong (Hang Seng Index) up 1.6% 
• Shanghai (Shanghai Composite Index) up 0.4% 
• Sydney (S&P/ASX 200) up 0.6% 
• Seoul (Kospi) up 0.5%
• Mumbai (Sensex) up 0.3%
• Taipei (Taiex) up 0.4% 

Look at the DJIA chart. If the 16.000 would be taken today or max. tomorrow the area is opened up to the historical highs around 16.500. We are very optimistic about the followings week rally.

The BFM Assets Team.

THE GREAT SENTIMENT TRANSFORMATION

U.S. indices finally turned into green and finished the week with modest gains. The two-day rally helped indices break the losing streak. The DJIA gained 0.6% over the past week. SP500 recorded a 0.8% weekly gain after three straight losing weeks. The European stocks moved higher too and Asia shows strength and they broadly stay higher this morning.

• Dow 15,794, +165, 1.06% 
• Nasdaq 4,126, +69, 1.70% 
• S&P 500 1,797, +24, 1.33%

After a long period of correction the investor’s sentiment has turned around. Beginning of the year everybody was in euphoria. But I am really scared when no one seems to be worried about anything. Finally, the picture is different, which is a good sign for possible market gain.

In the beginning of 2014 the bullish sentiment rose to its highest levels since January 2011 (55%). Recently after six weeks of market correction - according to AAII Sentiment Survey – bullish sentiment declined to 27.90% last week. This is the lowest bullish sentiment since April 2013. The optimism is not with us anymore.



In another survey we could see the same pattern. The Marketwatch made a survey which says the followings:

• The correction is over: 30,7%
• Is not yet over: 45,9%
• Not sure about: 23,4%

http://blogs.marketwatch.com/thetell/2014/02/07/poll-is-the-stock-market-correction-already-over/

All in all. The investors have fears now which I like. Without that fear the market couldn’t gain further. So we really needed this change of sentiment and our bet is the market goes back again into the bullish trend and will go up to new highs again.

The BFM Assets Team.

EMERGING MARKET CONCERNS

Remember when the big diving got started in indices in January the argument was the emerging market fundamental problems. The market recovered yesterday in fast mood after the great tumble.

• Dow 15,629, +189, 1.22% 
• Nasdaq 4,057, +45, 1.13% 
• S&P 500 1,773, +21, 1.22% 

The question is the emerging markets are doing better? Shucks. It was only one kind of fear which was overestimated, but some countries is true are still struggling. We don’t have to watch Brazil, Argentina, South Africa – but I know the investors are fixed on those. Everybody knows they have problems. So no worries if some bad news comes from those countries, it is business as usual. Nobody was speaking at the end of 2013 about the Turkish lira or Argentina.

But if we have some bad news from other emerging markets like China, South Korea we have to be concerned. If they start to crumble that could be a bad scenario.

The flu of fear from recession is still with us. But on the other the last couple weeks correction might be healthy either. The fear is still with us and honestly I like the fears. I am scared when no one seems to be worried about anything. We are always worried about unforeseen future.

So when the fear occurs on the market stay calm, don’t buy, be watchful until the things cools down and put money again if the markets going up again. Our forecast for this year is still bullish and expecting at least 8-9% gain in SP500, maybe will hit the 2.000.

The BFM Assets Team.

IT IS NOT A PANIC

... but I recommend stay on the sideline. After a long time of bullish market we are on the sideline recently and waiting from some indicating signal which way go the indices going up or going down. That is the best you can do at this point. The falling so far has been fast enough and maybe we might see another Dead Cat Rebounce within few days.

Generally we are still bullish on the market because it is still a bull market, and as the old rule says on the bull market three positions you can possible have. Really bullish, kind of bullish or neutral. Don’t go short on a bull market. Our bet now is for a proper position is being neutral. The bull trend is not yet violated only the rally got stopped and could rally again, but for this we need some clear confirmation by Mr. Market. This is not a bear market at all. But true we have had severe and pretty nasty correction this year. This is the time to gnash the teeth, and sometimes is hard to accept this kind of corrections. 

In term of technical analysis the Dow needs to close above the 15.750 key level that would be a confirmation of tracking back. But in the worst case scenario the DJIA could back test the 14.000 support level, which was the 13 years trend channel’s top. The only problem is that in the last two days after the big dive on Monday the market doesn’t show strength and couldn’t recover at all from the ground. This is not a good sign.

The BFM Assets Team.

INVESTMENT & OUR BRAIN

In the book of Your Money & Your Brain, by Jason Zweig, I have found some remarkable and fascinating things. Since for a long time I have been trying to understand better the mental side of trading and I am pretty convinced this is the key part of our job. If we don’t understand and underestimate the mental side of the trading that is the second biggest mistake after the not right money management.

I collected out few point from the book:

• Our brain works in trading like a drug user. We always want more and more like cocaine user. We like the addiction of profit and risking more and more to get that reward.
• The result what we planned is not enough. We need more. That is why we are increasing the position size and taking bigger positions because we need bigger dopamine hit. 
• Losses and gains both effect on our body and brain. We have a stress in our stomach and higher blood pressure if we lose and we feel euphoria when we win. 
• The losses create mortal danger for us. We have bigger emotions if we lose. That is why we are not buying when the market in panic. On one hand we want to make huge profit but our fear from the loss is much bigger on the other hand. 
• Our brain loves to gamble. We always believe sometimes we will hit the lottery prize. And that is why we are taking too much risk on the markets and increase the postion size. Our brain is greedy. We are buying many times overvalued stocks. 
• Gain doesn’t give us happyness. Our mind is weird we always want to win and if we have, finally we are not really happy with that and forget that within the short period. 
• Our brain loves to predict the unpredictable things. But we are extremely poor at forecasting the future. 
• We are always greedy and want more and more. Nothing is enough. Zweig quote a statistic for that: In 1957, the average American earned about $10,000 (adjusted for inflation) and lived without a dishwasher, clothes dryer, TV, or air conditioner. But 35% of people surveyed then said they were “very happy” with their lives. By 2004, personal income had nearly tripled after inflation, yet 34% of the people now said they were “very happy.”

DO YOU WANT TO EARN OVER 30% PER YEAR? Invest into our fully regulated Swiss Managed Account Fund: http://www.bfmassets.com/managed-accounts

The BFM Assets Team.

THE BLINDFOLDEDMONKEY IS STILL HERE

I hope all you heard about The Blindfoldedmonkey’s fascinating story, which is actual again.

“… it means that a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts”. Burton G. Malkiel, A Random Walk Down Wall Street.

Professor Burton Malkiel, the Princenton professor once asked his students create charts of fictional stocks by flipping a coin. The starting stock price was at 50$. The stocks either gained or lost 50cents depending on the coin flip. After a while Malkiel showed these charts to a technician analyst and the guy said “What is this company? We've got to buy immediately. This pattern's a classic. There's no question the stock will be up 15 points next week.” The lesson for all that most of us love to see patterns and predict the future, but many times flipping the coin is easier and better.

Malkiel’s random walk hypothesis does not mean that companies and stocks are rising and falling randomly. But mean that in the short term we are wrong. We are not able to see the short term fluctuations in prices. Most of the short forecasters are only charlatans. In Malkiel’s test the Blindfoldedmonkey do better job than financial analysts.

Later in 1990s one contest held between pros and the monkey. The pros won 61 of the 100. But they lost 39% of the time. The performance of the pros versus the Dow Jones Industrial Average wasn’t impressive, only 15% could beat DJIA. Simply investing passively in the Dow, an investor would have beaten the picks of the pros. But found that the pro’s portfolios were much more risky and paid out less in dividends than the stocks picked by dart.

This story reminds us being always humble and don’t overestimate the forecast because no one sees what holds the future.

The BFM Assets Team.

RISK OFF JANUARY

January was disappointing for investors after the great Xmas rally, nobody expected this kind of falling markets.

• DJIA -5,3%
• SP500-3,6%

This was a sobering month. There is a concern about tapering that FED won’t rescue the market again. Most of investors turned into risk off mood and left the market and covered their losing positions in January. This drop means whole year decline? We cannot be sure about that but not a good signal for the whole year. The first month direction is clear – bullish.

There were plenty of concerns in January about the FED tapering, emerging market risks, disappointing American company results and the some emerging market currency issues. But in my view those were not the real effects behind the sell-off. The only reason was that, the markets are rallied too much in last year and Mr. Market needs some refreshments. So the two digit correction easily could come. No worries. 

In technical view the 15.750 support level is lost at DJIA so down way now is pretty opened. The area is opened for further sell off and investors could stay in risk off mood.

The BFM Assets Team.