ANOTHER DAY, ANOTHER RECORD

In the last two weeks everything was about a rally. Green bars everywhere across the board. The SP500 closed again at new high on Thursday – 1.920 – and made its 13th record of 2014. Yesterday the market didn’t care at all about the disappointing Q1 US GDP data, all major indices just stopped for a while and then gained further. The market does what it wants to do – go north. Nothing can stop this movement, Mr. Market wants to go up higher and nothing could block its own way.

• Dow 16,699 +66, +0.40% 
• Nasdaq 4,248 +23, +0.54% 
• S&P 500 1,920 +10, +0.54%

Show the strength of the bullishness that all three benchmark US indices closed at their intraday highs at yesterday US session. Most likely this pattern means more gains in the following couple of days.

In Far East, the Nikkei has just finished six days rally in row and closed higher yesterday again. Basically we are quite bullish in Nikkei in the last weeks and we are expecting more gains further in June and July because the index has not performed well and was oversold in the Q1 2014. And, it is a good bargain now.

In Nikkei on 21st of May there was a clear break out at 14.200 resistance level and our next target is at the key level of 15.000 points.

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The BFM Assets Team.

FOLLOWING THE CROWD IS A GREAT WAY TO LOSE A LOT OF MONEY.

After four days winning streak of SP500, the index stays steadily over 1.900 at record level. Against all concerns in the last couple of weeks all US indices gained brutally in the second half of May. Why?

Because if the markets are driven by bullish and bearish sentiments and if you buy at the top when everybody is euphoric and prices are high you will lose, but if you do the opposite of this like we did when everyone was concerned that is the only way to be profitable.

The market is a pendulum. Always swings between optimism and pessimism. We have to sell the optimism and buy the pessimism, but most of retailer traders do the opposite of this. So, we have to check how they work, and we have to do the opposite of that. When they are bears we have to be bullish and when they bulls we have to be flat or bearish. If you want to have a better performance than the crowd, you must do things differently from the crowd. You have to be contrarian and never trust in the consensus because the consensus was the market would go down, but look at the chart now and start to cry on it you traded the short side of the market in the last ten days.

We were long because as John Templeton once reportedly said “Wait till the moment of “maximum pessimism and then pounce”. That is what we did. In May everybody was super pessimistic about any rally. We learned the lesson “When all the experts and forecasts agree – something else is going to happen.”

The public buys the most at the top and the least at the bottom. If you look at this chart below you will find in AAII retail sentiment statistics that typical retail clients were pessimistic since end of April. The bullish attitude was extremely low.

On this other chart you see with the vertical red lines when was the highest pessimism between the public and all these events followed by biggest rallies. At these points the bullish attitude usually was below 30% and bearish sentiment was over 30% or 40%. So, we have to buy only these days at the highest pessimism.

When the pessimism and bullish attitude is under 30% that is a good opportunity to buy the market. Since last week the retail investors are more bullish and got over 30% and started to be more optimistic:

So now we have to cover our long positions and stay flat and more defensive because some correction will come for sure. This AAII weekly sentiment survey is the best short time contrarian indicator which I have ever seen. With this statistic you can easily see the main sentiment of the mass. Forget consensus.

In short the typical public investor buy high and sell low, and repeat the process multiple times. But we have to be contrarian. As most great investors practice something called contrarianism. I know trading against your friends and the consensus from the CNBC is hard, but whoever said being a contrarian was easy? It always feels better buying something that everyone else is buying too.

If it was all wine and roses, anybody could do it.

The BFM Assets Team.

CAC40 AND SCHNEIDER STOCK

You can ask I lost my mind post about a releatively unknown stock from France. Sorry for that fellows but I was just asked about this stock and created this analysis and I tought it could worth sharing with you, because it is a good template how works the divergence trading beetwen one certain index and its stock.

In a historical view at the big mortgage crisis in 2007 the Schneider was around 26€/share and plunged massively and bottomed at around 13€ and has started to gain hand in hand together with CAC40 and other benchmark indices till today. In 2011 March made a local top at 28€ and then fall back until end of 2011 and then started the great rally and uptrend which has been with us for around 2,5 years.

The markets always run in cycles meaning optimism and pessimism. It is true for Schneider as well. The trees never grow up to the sky. So all rally needs to be followed by some kinds of consolidation. The consolidation only means 10% per year or 20-30% per in each 4-5 years. But, it will recover after a while because we are in the middle of secular bullish uptrend of the European markets. After two an a half year rally of Schneider’s stocks needs to come some corrections. Why? I have some arguments here below:

1. The market - specially CAC40 – is in strong bullish uptrend , no doubt. But on each market there are faster and lazy stocks. Laggings and leaders. Schneider has been leader till end of 2013 is vasty overvalued by now comparing to the CAC40. There is a great arbitrage gap between the index and CAC40 recently. 
2. The old rule says the leaders will be losers and lazy stocks will be leaders because it is vital behavior the markets. The investors love to buy the optimism, the tops and the rallies and nobody wants to own the lazy and underperforming stocks. Statistically proven that this is the typical loser attitude and one of the worst investment bias. We tend to buy the lazy and sell the trendy and fancy stocks and vice-versa.
3. Currently after the long rally the Schneider is a fancy stock and needs to close the gap between the CAC40 gap. Why? Cause they have to correlate with each other and can one run faster for a while but not forever. And, sooner or later they need to close the gap and catch up each other. It is the only question of time.

In 2 years chart easier to recognize the correlation between them, so now the Schenider is overvalued and overbought and CAC40 is undervalued and undersold.

• There is a huge gap – which means the following scenario for 2014. The CAC40 will gain faster than Schenider this year. It doesn’t mean the Schenider will fall down massively, only means this year will Schneider is going to underperform the CAC40 – around 0-10% range is the most realistic
• The consolidation is started in 2014 which means recently the Schneider underperforming the CAC40 on YTD so far:
• Schneider: 2014 YTD +6.56%
• CAC40: 2014 YTD + 12.46%

• In the bigger perspective the bullish trend of CAC40 is still not violated and we are expecting more gain this year over 20%
• For Schneider the bullish monemtum can countinue further, but with lower performamce in range of 0-10% only, which is not a disaster but we shouldn’t expect that kind ofrally like last year with +16,66%. 

All in all. Our suggestion is to buy all correction periods during this year. Grab all opportunities which exceeds the 4-5% correction level and buy these dip options and hold tightly.

The BFM Assets Team.

NEVER FIGHT WITH THE TAPE...

Absolutely true because against all the correction fears, the market is still bullish mood and gain further day by day. Against all concerns in the last couple of weeks the market hits new historical highs. For instance the SP500 future right is at 1.905. The main consensus that the market is in bubble and need to be burst today or tomorrow. But as Jesse Livermore once reportedly said „The stock market is never obvious”. If some guys out there think they are smart enough to figure that out when comes the correction I have to wake up them, the market always moves to disappoint the masses.

The market always goes that way which creates the biggest pain. And, recently the consensus is to sell and in the last one week the market hit new highs again and killed the short runners.

All smart guys including Paul Tudor Jones is cautious. I have discussed with some traders in the last few days and their sentiment is extremely negative, and now they are surprised the market jumped higher again. Last week at SALT conference in Las Vegas David Tepper said, "I am nervous. I think it's nervous time." He continued, „the market is probably OK. But it's getting dangerous." The respected trader Ralph Acampora stated last week “I have a sick feeling a 25% crash is ahead.” Many of my friends also said to me they are flat or start to short the market because comes at least a 10% plunge in the market pretty shortly. I could bring around ten different stories just from the last two weeks how many people warned me about the bubble.

But, the fact is that they are wrong. I am not laughing on them, I am only shocked how we are not possible just read the tape or put the SP500’s chart on the wall step back 10 feet and you will see this is a bull market. You have to buy the dips and don’t sell the tops. There is still opportunities and I doubt the market is overvalued.

The BFM Assets Team.

STILL NO COMPETITION FOR EQUITIES.

They are performing well in YTD basis and we are expecting after the break out of SP500 more gain further this year. All the three leading US benchmarks are finally positive for the year, and first in the history SP500 closed over the record, above 1.900 level. That is a significant sign of bull market. Mr. Market is discounting all bad news and the optimism is still modest so the sentiment is perfect to gain US indices further, most possible at the lagging Russell 2000 will perform really well in the following weeks.

Last week US markets gained 4 days out of 5 and had only 1 day sell off. Friday, looked like this, before the Memorial Day market closure.

• DJIA +0.38% 
• S&P500 +0.42%
• Nasdaq +0.76% 

All of them are in the positive territory again in 2014. The Dow and Nasdaq are up 0.2% YTD, while the S&P500 is up 2.8%.

Technically the SP500 is showing bullish patterns, no doubt. As we forecasted last week it took couple of days to close above the 1.900 key level. It’s done. After a week consolidation with four dips - at 1.870 - the index broke out Thursday and now the air is opened to further gains. Our target for 2014 is the 2.000.

The BFM Assets Team.

THE MARKET TOOK A GREEN PILL

The statistic of this current week:

• 3 geen days
• 1 red day

The Tuesday big sell off is just a history by now, Wednesday and Thursday the market have been bounced back and moved impressively higher and now the SP500 is in a short distance to 1.900. Yesterday SP500 was traded just 0.3% below those high which was hit on 13th of May. Markets made nice, but volatile week so far.

Thursday all indices closed modestly higher. Yesterday the sentiment was absolutely positive since the bell rang and US indices strengthened during the whole trading session. The Russell as we anticipated yesterday over performed the other indices and was outstripping gains for other indices.

By the way, Russell2000. Some analyst says the Russell fell below its 200 day moving average. My question is that means anything? I doubt that, the MA200 is only able to show the median line and the past, but it has not any relevance for the future. So, we could ignore fully this 200MA believer’s interpretation.

At the bell stock markets ended the day with gains for a second straight session.

• S&P 500 — + 0.2%, to 1,892
• DJIA — + 0.1%, to 16,543
• Nasdaq — + 0.6%, to 4,154
• Russell 2000 — + 1%, to 1,114 – here is Mr. Market’s answer for the 200MA concerns

Technically SP500 made a break out Wednesday at 1.883 and gained further yesterday. The next target and resistance level is at 1.898. If this level is taken we could go up into higher territories heading to 2.000.

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The BFM Assets Team.

EVERYTHING IS GREEN, EXCEPT RUSSELL 2000. I TELL YOU WHY.

Okay, it is only my view and maybe I am wrong. I have two arguments why there is huge divergency, while SP500, DJIA and Nasdaq are rallying, but the Russell 2000 is lagging behind. For instance just yesterday US markets are performed like this:

• S&P 500 +0.8%
• Dow +1% 
• Nasdaq +0.9%
• Russell 2000 +0.5%

The Russell 2000 index swung wildly yesterday and finally managed to close slightly higher, but only made 50% the gain of other US indices. Why? Here are my hints below.

1. Firstly, the Russell 2000 is the most people’s favorite small-cap benchmark — they understand better, so this is really the small retail clients arena and product. Their sentiment turned mostly bearish and having huge concerns about the market. So when the pros are buying the SP500, DJIA and Nasdaq the Russell is mostly sold by the rookies and housewife.

2. Secondly, the Russell 2000 went to much up last year and after that huge and strong rally needs to consolidate for a while. In the long-term the enormous arbitrage gap between the DJIA and Russell 2000 needs to get closer or being closed. It needs to be done time by time, the only question is when occurs. So DJIA needs to catch up in the following weeks and Russell needs to consolidate or being flat.

Those points don’t mean we are short on Russell 2000, not at all. We just started to buy again Russell 2000 because it is a good bargain.

The BFM Assets Team.

TUESDAY SELL-OFF

Yes, remember that couple of weeks ago all analysts on the floor were talking about Tuesday rallies and finally in the last two Tuesdays the market really plunged. So that is the wisdom again. Some rule works for a while and then Mr. Market changes and doesn’t work anymore. That is the magic of the market.

The final yesterday results, which not a disaster, but reasonable drops:

• S&P 500 -0.7%
• Dow -0.8%
• Nasdaq -0.7%
• Russell 2000 -1.5%

The selling intensified in the afternoon and finally the DJIA closed in three weeks low. In bigger picture the market is in roller-coaster mood. One or two days up and then down again. The green bar – red bar pattern creates high volatility and seems for many investors no direction at all. This makes the investors bored and when the vast majority is bored enough Mr. Market will go up rapidly and surprisingly. This is the war of nerves recently.

The old rule says after the Memorial Day – next Monday – starts the summer season. We are expecting clearer direction in the summer upside because the last five months without any clear direction and hesitation the market needs to find its way and this period of yo-yo pattern needs to be shortly over. There is nothing exceptional about if the summer rally this year will come. Last summer was really boring and always happens the opposite of the consensus.

The BFM Assets Team.

BUYERS ARE BACK

Definitely for the last two days – Friday, Monday. A lot of green we have seen Monday. Yesterday all three main indexes closed in green, the Nasdaq was the flagship in the rally. After starting out in the red area in all US markets the trend changed and closed nicely higher. At the bell, the stocks ended higher across the board and were rising for a second session.

• S&P 500 up 7 points, + 0.4%, to 1,885
• DJIA up 20 points, + 0.1%, to 16,511
• Nasdaq up 35 points, +0,87% to 4,126

Due the sentiment, that is pretty nervous we expect greater volatility in the coming days, maybe weeks, which might be tough, but I tell you what, folks. On the other side this volatility should present many buying the dip opportunities.

Recently many prominent investors and actors declared the bull run is over, at least for now. Only this anxiety can lift up higher the markets and get back to new high levels. Honestly I do believe this is still a bull market, the bullish trend is not violated last week, only some significant sectors made corrections and fell only 0,5% which is not a disaster and end of the world. The rebound in the last two day shows that there are many buyers out there at bargain prices.

We are still on the long side of SP500 and waiting for the breakout at 1.898.

The BFM Assets Team.

LAST WEEK & THIS WEEK

First, the last week:

The US stocks „late-day rally” gives Nasdaq weekly gain and flat the week for SP500. S&P500 rose Friday 0.4% and ended roughly flat for week.

Weekly US performances:

• Dow up 0.3% Friday, down nearly 0.6% for week
• Nasdaq jumped 0.5% Friday, up 0.5% for week
• SP500 up 0.4% Friday, down 0.03% for week

Friday US stocks traded in negative territory for most of the session and in the last two hours jumped higher. As the old rule says the first 1-2 hours represent “emotional buying,” driven by greed and fear of the crowd, the smart money typically waits until the end of the day, which finally lifted up the market.

After last Thursday huge sell off, the market made a modest gain Friday and that was a good „buy the dip” opportunity for the braves and smarts. The smart guys aren’t necessarily panicking at small sell-offs like this.

This market pattern seems easy. Each time when stocks decline, buyers arrive and start to buy the low levels and the dips. That works like a life saving net for Mr. Market against any bigger correction.

This week:

We noted last week the Russell 2000 is at 10% correction, but this not the end of the world, as we stated we add more and bought the dip, because it is cheap and good bargain now. We have the similar view about SP 500 either. We bought the dip Friday and expecting rebounce back to 1.900 level maybe this week. The market will get back to bullish track again that is our short time expectation.

The BFM Assets Team.

HOLY CRAP! WHAT A DAY IN RUSSELL AND DOW.

US market had its worst day in five weeks yesterday. I am just wondering why everyone is talking about the bullish Tuesdays why the subject is not the bearish Thursdays, because regarding my statistics Thursdays have been the worst days YTD in 2014.

After two days of 1.900 points SP500’s new historical high, stocks are substantially down after yesterday serious sell off. Dow made its worst decline since end of this February. Russell 2000 is suffering by more than 10% drop by now and staying at the same level as six month back and dropped 1,9% intraday Thursday. The small cap index massively underperform the SP500 and DJIA.

Thursday data:

• S&P 500 closes down 0.9%
• Dow falls 1% - triple digit loss about 166 points
• Nasdaq ends down 0.8%

Pops up the usual question buy this 10% drop in Russell 2000 or expecting more drop? For me personally it is good enough level as a bargain hunter to own Russell 2000 index. Might go down further, but the risk and reward ratio recently is much better now than used to be couple of weeks ago.

In Dow there is still the resistance level at 16.700 as we stated yesterday. Only if the market will be able to close over this level would mean bullish break out. Till that time we buy the dips and waiting to bounce back.

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The BFM Assets Team.

BIG ROUND NUMBER RESISTANCE

Yes, the 1.900 right now in SP500. That is absolutely normal after 5 days winning streak that Mr. Market takes a breath. The investors yesterday dumped the stocks slightly, all US indices turned firmly in red. But the bullish trend is still intact and far not over, might come some consolidation day, but we expect the rally to resume later this week or next Monday, Tuesday.

Yesterday performances:

• The Dow average is off 101 points, or 0.6%, at 16,614.
• The S&P 500 is down 0.5% at 1,888.
• The Nasdaq Composite is off 0.7% to 4,100.

Markets are taking a pause as normal, the Dow could floating around 16.500-16.700 area in the couple of following days. It will get back on bullish track again if it would take out the previous resistance level at 16.700 and will be able close above that previous high. Until that time we are going to have some „buy the dips” opportunities.

The BFM Assets Team.

DENIAL PHASE

We are in the middle of the Denial Phase. Meaning the market, like SP500 is at historical high and made a clear break out of 14 years ranging period just in 2013, but vast majority of investors ignore this movement and the bullish sentiment fact and just waiting for the big drop and don’t want to believe the market is going new highs. They still argue with the 1.900 point high S&P500.

This is the Denial Phase pattern. Good Morning Fellows! This is a break out and the bullish rally just started last year!!! Take a close look at the chart below.

At the Denial Phase the investors start to rationalize their decisions for holding their short positions further, but as the market continues higher and the losses continue to mount, denial turns into fear, that confuse traders and all of them being more and more frustrated.

Generally bull markets go through three psychological phases:

• Denial
• Concern
• Capitulation

Recently we are the Denial Phase only. For some traders the capitulation will come in a few months or in years. During the Denial Phase the majority of investors are still bearish and want to see the market fall back shortly from the prior tops. They look upon the new daily records as merely another selling opportunity and think that stocks are pricey.

In shorter term on daily S&P500 chart I present you below how works the Denial Phase.

In theory works like this:

The BFM Assets Team.

ALL EYES NOW ON S&P500 TEST OF 1.900

The SP500 missed by a hair the 1.900 key sentiment level. But no question that the strong and positive momentum is in the market. This Monday rally happened on no news day, which is the great marker of the bull’s strength, without any macro news the market performed well. That strongly affirms Mr. Market wants to go higher and higher.

Yesterday’s market shortly:

- Pretty green day
- New historical highs Dow, SP500
- DJIA triple digit gain
- S&P500 only 3 points distance from 1.900
- All US indices are Europeans are massively gained

• Dow +0.67% 
• Nasdaq +1.77% 
• S&P 500 1,897 +0.99% 
• Russell 2000 +2.3%

The small cap index Russell did a fantastic day. The Nasdaq made its biggest one-day percentage gain since January 30th. This brutal bullish rally moved back SP500 and Dow to new record levels. The S&P 500 with +0.97% had the best one-day percentage gain since April 16. In 2014 so far the SP500 hasn’t been strong as last year, has risen around 1.6% so far in 2014, at this point last year, it was up close to 14%. But the market is always different and we are only expecting 6-10% for this year. So if we are right the second part of the year could be a great bullish run.

After the four-month of consolidation and ranging there is a now a great bullish momentum which can lift up to higher levels all US indices. Recently, we have bigger exposure since April in Nasdaq because it is lagging behind and still better bargain than the leading SP500 or Dow. So, we always prefer the bargain index that shows the positive and bullish momentum, like the Nasdaq. We see more room for further gains comparing to SP500.

The BFM Assets Team.

BRAZILIAN WORLD CUP AND BOVESPA

Honestly I don’t really think there is no direct correlation between this summer soccer world cup and the Brazilian stock market index. The only one is that the brokers are planning to watch the good matches, so those days the market volume is going to be lower.

But something fascinating is happening now in the Brazilian market. Last year the general view was about the emerging markets and specially about Bovespa that is nothing happening there and we should forget those. But this January against the main sentiment we placed a bet on Bovespa and started to buy on 11th January with quite a huge stake. So far, the index gained around 20% and this is our best performing asset in the last four months.

The index recovered from 45.255 up to recent price around 54.000. In our expectation this year will be a great performer the Bovespa index and could jump first to 58.000 resistance level and if it would be taken the next stage is at 63.000. It is realistic by the end of this year.

Why did we buy this January? Because we are contrarian and we had two arguments:

1. Bovespa is massively lagging behind the US and European markets and it is still far from the 2010 October top 74.000 points. From that level dropped in the last three years more than 40% and we love the oversold markets. That was a huge arbitrage option between Bovespa and main US indexes.
2. We always bet on the unpopular assets not on the trendy ones. Our motto is that the rookies are buying the hope... and buying the hype. We do selling the hype and buying the pessimism. At the beginning of 2014 there was a huge pessimism and concern about emerging markets generally. The sentiment was overwhelmingly negative regarding Bovespa. 

Being contrarian is not easy, but who said being a contrarian was easy? It always feels better buying something that everyone else is buying too. But, that way doesn’t create too much profit.

Trading against the mass’s sentiment is not easy, but it's definitely doable. There's nothing new under the sun, as Ben Graham reportedly said once „The smart investor greets downturns as chances to find great investments”. That is the way that we are waiting always for good bargains like the deal at Bovespa.


The BFM Assets Team.

MY CRYSTAL BALL IS SAYING: “BE LONG ON NASDAQ AND RUSSELL”

After a volatile day Thursday DJIA closed modestly higher, the other US indices plunged. It was again an ugly day for the Nasdaq for small cap index Russell2000 and for the S&P500. During the US trading session the DJIA reached its intraday high at 16.622. It is a new record high close from April 30 is 16,580. At session highs, the DJIA jumped 100 points and topped its previous record to close levels. The DJIA managed to stay in positive territory by the end of the day too.

• S&P500 — down -0.1%, to 1,875
• DJIA — up +0.2%, to 16,550
• Nasdaq— down -0.4%, to 4,051
• Russell 2000 — down -1%, to 1,097

Previous records:

Closings:

• DJIA: 16,580 (4/30/14)
• SPX: 1,890 (4/2/14)
• COMP: 4,357 (3/5/14) (14-yr high)

Intraday highs:

• DJIA: 16,631 (4/4/14)
• SPX: 1,897 (4/4/14)
• COMP: 4,371 (3/6/14) (14-yr high)

The Russell 2000 was at -1.00%. The index of small stocks closed 11 points, 1%, lower at 1,097. It has been made already -10% correction so far YTD, which is a good level to buy the dip opportunities. The weakness in Nasdaq and Russell2000 have come to an end. It is a good opportunity not buying longer the high priced big, or middle cap stocks, but buying the cheap Nasdaq and small cap companies.

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The BFM Assets Team.

THE SMALL INVESTORS ARE MOSTLY BEARISH

That means in contrarian interpretation the market will make a rally in the following couple of weeks. Why? Because most of the investors, I mean housewives are buying the highs and selling the lows. They are always buying the optimism and selling the pessimism. Now we are in the middle of pessimism, which means the market is bargain and we have to own it.

The sentiment is a great indicator, but the point is that we have interpretat adverse. If most of investors are bullish we have to sell or being flat and if the vast majority of retail clients are bearish we have to buy the market.

Yesterday the Marketwatch issued by Hulbert Investment this chart below. Regarding the Nasdaq’s sentiment. That is obvious that the dominant sentiment now is bearish and since beginning of 2013 is at its lowest point. That means the bulls are at the lowest amount recently amongst them. If you look at retrospective back the strongest rallies occured always after the big sentiment low points. The wall of worry is stronger now than in the last 15 months and the investors are mostly in risk off mood.

• July 2013
• September 2013
• February 2014
• May 2014???

This interpretation is good for short or middle term trading. Obviously can’t predict the market for years, but if we are okay with few months we could use this as a contrarian indicator pretty effectively.

The BFM Assets Team.

TUESDAY SELL OFF

First atypical day, yesterday didn’t work the Tuesday magical rally effect. Tuesdays on YTD have been the strongest part of the week so far, but not anymore. US stocks ended reasonable lower and the financial and consumer-discretionary sectors were leading the decline. The volume was very little and indices closed closely at daily lows.

S&P500 — down 16.94, -0.9%, to 1.867. The index has been losing its ground in three of the last four sessions. The index is down -1.2% from the record close of 1.890.90 2nd of April.

DJIA — down 129.53, -0.8%, at 16.401. The big cap index also fell for three out of the last four days and is off -1.1% from the record high on 30th April. Only two stocks out of 30 were able to stay in positive territory.

Technically we start to buy again the SP500 if the price would be able to close above again the 1.885 key resistance level, so maybe we have to be patience for couple of days. This is the time of just watching and waiting; waiting for some good bargain opportunities and then react.

The BFM Assets Team.

STOCKS HAVE BEEN STUCK NEAR FLATLINE

Continues further the range trading with huge volatility on the positive territory that is a typical pattern of pre-breakout period. Monday all three US markets closed higher and excluding Nasdaq they are staying around their tops which shows they are strong and want to hit new high pretty shortly. Right after the opening yesterday the Dow turned into a three digit loss first and then gained again. This volatility kills most of trader’s nerve. The only way to handle this stress is to reduce the position size.

• S&P 500 +0.2%
• Dow +0.1%
• Nasdaq +0.3%

So far the picture looks good while the investors always buy the dips and pull up the markets. The markets are in big range, but they are not able to drop significantly. There is not any bad news from Ukraine which could push lower Mr. Market.

The best approach if we don’t blame the market for volatility, for the yo-yo pattern just to buy the dips and corrections, but to be able to do this, we need to have patience and good nerves. But all in all those are the two best friends of good traders always.

The yesterday’s moves of Dow, crazy, right?

The BFM Assets Team.

ALREADY BAKED IN THE CAKE

I mean the Friday good job report data, the impressive number of 288,000 jobs in April. That is the biggest increase in more than two years and highly above the expectations of 215.000.

The unemployment rate is the lowest since September 2008 is 6.3%. The stronger-than-expected report lifted first US indices, but the rally proved to be short-lived and finally made slight losses on Friday trading session.

Friday:

• Dow 16,513 -46 -0.28% 
• Nasdaq 4,124 -3 -0.08% 
• S&P 500 1,881 -3 -0.14% 

Weekly gains:

• SP500 +1%
• DJIA 0.9%
• Nasdaq 1.2%

The DJIA seems very bullish and made on Friday its highest intraday level ever again, at 16.631.

So the US indices don’t struggle at all, they are really fine; the crash is absolutely not imminent. The Dow was able to set a record closing high Wednesday, but on Friday went down around 0.4% from its record closing level of 16.580. However, all in all the week was really good and shows that the index is in pretty nice bullish momentum.

So fascinating bullish uptrend pattern on the weekly chart of DJIA:

The BFM Assets Team.

SOME BUBBLES FROM THE LAST DECADES

We 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.

The BFM Assets Team.

WHERE ARE THE SELLERS? THEY ARE BUSY WITH COVERING...

The bull market is unabated, it is hilarious. As we anticipated the DJIA hit new high again closed at a record level after rising 46 points to 16,581. The big cap index gained 0.8% in April. The DJIA surpassed the highest closing level, reached on Dec 31, 2013.

DJIA performed in April:
Dow +0.8%

And on YTD 2014:
Dow +0.03%

Yesterday the index reached the 16,592 level that is the highest intraday level ever. So if I were a short runner I would be so busy and nervous how to cover my losses. It wouldn’t be surprise to me if during the 1st of May European closure DJIA would make a great rally, many times happen this pattern when Europe is closed for holidays US markets make nice gain. Let’s see today what’s going to happen.

The SP500 continues the ranging around the top. That range in the last more than one week hanging around the 1.880 area. In bigger perspective since February the index in a wider range of 1.840-1.880, but we are expecting some kind of break out within few days either on SP500, if the index could climb and close above the 1.890 key resistance level. The buying momentum seems pretty strong on both indices.

SP500 performed in April:
SP 500 +0.6%

And on YTD 2014:
S&P 500 +1.9%

The BFM Assets Team.