WHAT A CHOPPY DAY!

U.S. and European indices ended Tuesday with a choppy trading session and went broadly lower. The market turned from optimism to red territory when European Union announced the new round of sanctions against Russia for its role in the civil war in Ukraine. These sanctions mostly effect on the following sectors: finance and oil production. At the beginning of US session DJIA was steadily above the 17,000 level, but finally couldn’t hold and closed at 16,912.

After the announcement all major indices in US, S&P500, DJIA and Nasdaq started the sell off to the end of session. Generally all benchmark indices suffered a severe drop, except the Russell 2000 which gained by 0,2%, surprisingly because it has been underperforming this year the other indices.

• S&P -0.45%
• Dow -0.4% 
• Nasdaq -0.05%
• Russell 2000 +0.2%

The FOMC holds its two-day meeting that started Tuesday morning, so today the choppy behaviour of the market might stay with us for today as well.

Technically the Nasdaq specially doesn’t look disappointing. If the index will be able close above the 3,970 level, in that case could jump again easily over 4,000 the technology index.

The BFM Assets Team.

WHERE ARE THE BULLS?

There is a very strange momentum in the sentiment. Against the fact that all US indices are on records or very close to that levels the retail investors are super pessimistic. That seems a paradox. Most of them don’t believe to their eyes, and don’t believe the market is really bullish. The AAII sentiment survey issued last week and show the anxiety:

The Bulls vs. Bear ratio is far below the meridian of 39 – now it is only 29,63%. What happens normally at these days. Big rally, just take a look at the chart below. The top of the market always comes right after when the ratio is in a lower territory.

This can be a good short term contrarian indicator. Because this lack of optimism could push higher the market.

The BFM Assets Team.

WHAT’S WITH THE DRAMA HEADLINES?

Due to another slow summer Friday in the midst of a longer-term market uptrend, finally the Dow 30 ended the week in red territory and most of the articles and many folks say this is horrible and it is a warning sign of the big correction. No, I doubt that.

The Dow 30 closed the week with only 0.09% decline and just five of the 30 stocks in the industrials were in the green. Friday loss was mostly due to Visa, which is the most expensive stock in the Dow and gave a disappointing sales outlook, pulling the stock down 4.2%. The DJIA is still struggling with the 17,000 level.

But put this data in a bigger context. The SP500 started the year around 1,850 and is now 120 points higher or about 6.5% gain for the year. So any correction is only a healthy period of this rally. Basically and finally the S&P 500 didn’t end up with a weekly loss.

• S&P 500 +0.01% for the week 
• Dow -0.8% for the week
• Nasdaq +0.4% for the week

The markets are running in cycles, some days up and some days down that is not a magical, plus there are breakouts and breakdowns quite often. In this bullish sentiment we are more comfortable buying the breakouts than selling the breakdowns. In technical terms recently we see the breakout level at 17,095.

The BFM Assets Team.

NEW ALL TIME HIGH, BUT LOW BULLISH SENTIMENT

It sounds crazy, but it is the harsh reality. Thursday the S&P 500 was hitting an intraday record above 1,990 and closed at an all-time high for the 27th time this year at 1,988. But, the retail bullish sentiment dropped from 32.4% down to 29.6%. This is the lowest weekly reading of bullish sentiment since May 2014.

Normally, when the equity market is making rally and hit new records, you expect to see bullish sentiment rise. But this is not true recently. The investors with bad memories of the bear markets are concerned not to make the same mistakes again.

The investors still don’t want to believe their eyes and accept the fact that this market is a bullish market. On the contrary after all new highs they are expecting and waiting for some correction.

The bullish sentiment between the US retail investors is lower now than the bearish sentiment. That is pretty rare, mostly seen after severe correction. So the fear and anxiety is on the market, which is good for buyers.

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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 is more complex than could be ever forecasted because it is a 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 none of them is 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 analyzed 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.”

The BFM Assets Team.

SHORT-TERM GAIN AND LONG-TERM PAIN

As far as I see, this is the new mantra between investors. They are still arguing with the tape, arguing with the harsh fact that this market is overwhelmingly bullish. Now this new phrase suggests, they accepted okay the market is gaining, but shortly comes the pain. In this interpretation in short-term the perspectives are good, but in longer term the picture is more dangerous.

This is the echo around Wall Street now. Why and how? What we only know the market is bullish today and all of us are only guessing about the tomorrow. So, I am super okay if I know and understand the today movements of the market, the clashes of bears and bulls. Honestly 90% of the investors don’t really know what is happening now.

There is no doubt that US markets are bullish:

• DJIA is over 17,000 
• S&P500 is flirting with 2,000. 
• Closed the S&P500 within a striking distance from its record closing level, reached on July 3 
• The S&P 500SPX achieved an intraday record above 1986

Yesterday closing:

• Dow +0.4% 
• Nasdaq +0.7% 
• Russell 2000 +0.8% 

That is so funny that the market always needs some anxiety and fear. The new scares are the followings earning plunges or FED tightening policy. But against all kinds of anxieties just take a look at the DJIA chart and easily you can pick up the market is in a bullish momentum without any doubt.

The BFM Assets Team.

SOME ARGUMENTS WHY THIS IS A BULL MARKET

Yesterday US benchmark indices stopped a bit and didn’t keep heading further north. The market modestly weakened about the anxiety of Ukraine issues and closed in the red territory.

• Dow - 0.28%
• Nasdaq - 0.16%
• S&P 500 - 0.21%

So this is a good time to bring some more fundamental and technical arguments why we think the market is in a bullish track and why it is not a bubble at all.

Some key facts:

• Investors remain pessimistic and there is no any sign of euphoria at all
• Vast majority of investors are still uncertain to start to buy or not. So there is a huge buying force potential offside
• US pension funds have their lowest equity allocations in more than 30 years
• Wall Street strategists still continue to underweight equities in their recommendations and offerings
• S&P 500® high beta stocks (100 stocks out of the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months by Standard & Poor's) are selling at their cheapest relative valuations in nearly 30 years.
• There is no enthusiasm on the corporate side neither

The general uncertainty is great. Without this there is no opportunity. This general disappointment and pessimism about this “most heated bullish rally” strengthen further our bullish attitude. We are at the phase of pessimism in the optimism/pessimism cycle and we do believe it still takes time for the majority to realize the market is really bullish.

The BFM Assets Team.

DID THE MARKETS GAIN ENOUGH?

Many retail investors and professionals are hugely concerned about the future of the US markets. Vast majority of people out there are thinking that after such a strong year the indices need to consolidate a bit. If we take a closer look at the historical data, the picture is more promising.

The average annual return in the last 90 years has been 11,8%, this means the double digit gain is the typical not the exceptional. More than each second year S&P500 made double digit gain. This year the S&P500 is around 7% gain so there is still further an upside possibility.

In each five years the markets tend to do more than 25%. In a bell curve the data are more surprising. The chance is 68% hat the market return is in the range of 11,5% and 27,4%.

On the losing and risk side there are only 4% chance that the market falls more than 30%, so if you are managing your money properly this correction are not really lethal for our portfolio. That means in each 25 years come a really big sell off and crisis.

All in all in our point of view we don’t see any reason not being bullish in the US markets.

The BFM Assets Team.

DROP BACK

US indexes dropped back severely Thursday after a Malaysia Airlines jet crashed near the Ukraine-Russia border. Oil gained more than 2,5%, VIX and Gold rallied as typical in these situations. Investors turned to risk off mode and opened big volume of short positions. The beginning of the trade was promising, the day started well, all indices jumped in green territory at opening of the session, but upon the news from Ukraine the market turned into red and SP500 suffered its biggest daily drop since 10 April. On DJIA mostly the airline stocks hit and the benchmark index did its biggest drop since May 15. On the contrary which is a bit surprising the Russian Stock Index gained with 1,42%.

• SP500 -1,18%
• DJIA - 1,41%
• Nasdaq -1,4%

There is a massive geopolitical risk in the interpretation of investors. Now the fear is about some kinds of escalation of war.

Now seems the DAX and CAC40 are consolidating after the opening bell this morning and might rebound today a bit. We don’t know yet on the long term horizon what this event mean, we have to follow for 1-2 days and if the market won’t drop further that would be a meaning of the long trend continuing.

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The BFM Assets Team.

DJIA NEW RECORD – 17,138

The Dow Jones Industrial Average closed at a record level on Wednesday again, for the 15th time of this year. The reason is most possibly are better-than-expected corporate earnings and the Federal Reserve’s Beige Book, which said that economic conditions and labour markets showed improvement across the country into early July, gave stocks a late lift.

The point is that it was again a green day on the Wall Street.

• Dow +0.45%
• Nasdaq +0.22%
• S&P 500 +0.44%

There is no doubt of a bull market. Getting to be a bit boring each day the market marching higher and higher, but that is a nice and profitable template.

The Dow Jones only does what we expected and forecasted last week – new record price. The breakout is obvious by now, the index closed above the key support level of 17,050 and we are expecting more gains.

The BFM Assets Team.

DO MACROS HAVE REALLY EFFECT ON MARKETS OR NOT?

For many many years I have been in favour of André Kostolany’s quote that "The relation between stock exchange and economy is like a man walking his dog. The man walks slowly, the dog runs back and forth." But I have to revise my thinking, because I have found some remarkable statistics about why it is not true always. Sometimes it is, but plenty of times not at all.

First that chart below looks confusing. Just look at that, there’s no correlation at all as my previous hypothesis said. It appears that slightly negative the correlation between the fundamentals and market movements.

This chart proves me again and again the markets are inefficients and driven by the mass not by the micro or macro facts and data. We are all as speculators not rational human beings at all. We are totally irrationals. We ignore the facts in most cases. We are making decisions emotionally. But as Warren Buffet says "…Returns decrease as emotion increases…"

And what is the lesson for the future from this fact? As a speculator we should always hold economic news at a bit distance when considering our investments. That is why I never care about the news itself. I don’t like to interpretate right after issued the news because in this case it would be only a red-black casino. But what I am really interested that how the market reacts upon that news. All in all I don’t care about mine of any others interpretation, I only care about the market’s interpretation.

The BFM Assets Team.

YELLEN OPENS HER MOUTH

Yes, today Senorita Yellen testifies again. Any time she opens her mouth the market just goes upward. Let’s see today as well the reaction of the market; specially we are expecting high volatility at that time. For sure there is no evidence the market will go north, so don’t sell your house and buy the market today. Mr. Market always goes that direction which creates the biggest pain. In other words, there are no real big sellers on the floor and all investors want to see pretty shortly the SP500 at 2,000point.

Yesterday stock markets closed firmly in green territory. US benchmark indices closed higher after a lost ground last week. Especially the Dow scored a new intraday record at 17,076 and as we expected yesterday stayed above steadily the 17,000 key level. The prior intraday record was at 17,074 on 3rd of July. The DJIA closed again above the 17,000 level, first time since July 7.

Is there any caution flag? We don’t think so. Investors returned from the weekend in strong buying mood and we are expecting more gains definitely this week.

• Dow +0.7% to 17,055 (Close 12points below the previous record)
• S&P 500 +0.5%
• Nasdaq +0.6%
• Russell 2000 +0.5%

In terms of technical analysis the DJIA must be closed above the 17,055 today and then the area is opened for further gains and might be heading to 17,500.

The BFM Assets Team.

IGNORE THE DOOMSAYERS

Yes, because against that fact last week US indices were down, the market is still bullish and the correction has not been eruptive and stormy enough last week which means the bears are not strong enough to make bigger trouble on the floor. The correction doesn’t seem now realistic. It could come a bit later in couple of weeks or month, but not now.

Friday US markets closed higher, but stocks ended the week in negative territory.

• SP500 +0,17%, weekly loss -0,9%
• DJIA +0,2%, weekly loss -0,7%
• Nasdaq +0,4%, weekly loss -1,6%

Technically we have some levels on Dow 30. If any day the DJIA would be able to close above the 17,000 level, that can be a clear indication of breakout and in that case the index could jump up to 17,050 level easily and then if that resistance level is taken the market could go up higher gains and stay steadily over the 17,000 region.

The BFM Assets Team.

FED EASES AND MARKET RALLIES...

That is the template of yesterday after the FOMC minutes. FED tapers, markets do rally. That is a clear sign of a bull market. The main indices managed to finish near to the session highs, while traders appeared to cheer the Fed minutes. The U.S. stocks closed modestly higher on Wednesday after the FOMC minutes. FED members decided to end the Fed’s bond purchases by October if the economy stays on track. This morning the European index futures little changed after 4-day drop, and therefore we are expecting some rebound today.

Yesterday performances:

• Dow +0.47%
• Nasdaq +0.63%
• S&P500 +0.47%

Against all these bullish signs I love to read comments and article like those below. I just found them within few minutes this morning:

- “The End is coming. Sell everything!”
- Michael Sincere “there is nowhere to go but down.”
- WSJ “buyback slowdown may signal bull run's end”

I would tend to disagree with these statements. We are among those who see this bull market having more room to run because just yesterday the DJIA showed again the power of bulls and came within about 1 point of 17,000. On DJIA the new resistance is at 17,000 if it is taken the index could go up new record again.

The BFM Assets Team.

DOW UNDER 17,000 AGAIN

Which is not a disaster, just a slight consolidation after the last week stormy rally. DJIA is just got back below the 17,000 for the first time after the great bullish momentum. This modest drop doesn’t mean anything. The European indices dropped more and show more weakness than the Wall Street. The Euro Stoxx 600 fell to the lowest level since end of May and extending a three-day loss to 2.6%. Yesterday started the earning season in US and Alcoa, the largest aluminium producer kicked off earnings season with its report after the market closure. Due to these earning reports, the market might be much choppier.

Stocks closed broadly lower:

• Dow ends below 17,000: -0.7%
• S&P500: -0,7%
• Nasdaq: -1,4%

On technical side the condition of the market is still the same. The DJIA is still bullish the uptrend so far has not been violated, so we only have to hold our long positions. At 16,930 there is a key support level and the next resistance level is at 17,060. Between this tight range nothing will happen. We are going to react if the index index leaves this territory in any direction.

The BFM Assets Team.

DOES LOW VOLUME INDICATE BEAR MARKET?

There is a common knowledge that the low volume means not enough investor on the buying side and lack of confidence in bulls so the market main trend is bearish and it needs to come down. In the last couple of years always heard the echo "lack of confidence", "prices are too high", "no volume, no bulls”, etc. But the fact is the Dow is over 17.000. So, what is wrong with this volume issues?

If you look at the chart below by Tabb Group, you can find there is a negative correlation in terms of volume and market decline. The top of the volume was in 2009, 12,3 billion share/day dropped to the recent level of 5,8 billion share/day. It means 200 million share/day more or less. That is bigger than 50% decline. Surprisingly the highest volume was at the financial crisis.

The one billion dollar question, why is the volume coming off? It seems to me couple of reasons:

• High frequency trading is falling since the top of 2009. Dropped that kind of volume by around 13%. 
• More money is being invested in index funds and less in the actively managed stock funds. The flagship and pioneer of this invention is the John Bogel’ Vanguaard 500 fund. 
• The investors are prefer the futures and options instead owning single stocks. While stock trading declined, the opposite has happened with equity futures and options. 5 times higher volume on futures now than it was in 2009. 
• Since the 2009 mortgage crisis the big banks reduced their speculative exposure. Due to the Dodd-Frank regulation that restricts banks from proprietary and speculative trading. 

All in all don’t take too seriously the volume indicator and honestly we have been never fearful about the concerns of volume because the market since 2009 was obvious for us just buy and never sell.

The BFM Assets Team.

EUROPEAN AND ASIAN OUTLOOK

Due to Friday closure of Wall Street and US benchmarks the futures stayed at the high territory without any significant moves. So, today we take a short look at Asian and European updates. In Europe stocks fell a bit after the biggest weekly rally since March. After the German industrial production data this morning which missed the expectations and spurred worries that Europe’s economic engine is losing steam. The losses came after data showed industrial production in Germany dropped 1,8%, marking the biggest monthly slide since April 2012. This morning all Europaen indices are slightly in a negative territory, but that is really a modest consolidation.

In a technical perspective the DAX still consolidating a narrow wide range of 10,000 and 9,900. We would be bullish again if the market will take the resistance level at 10,000 out.

• FTSE 100 6,852 -11 -0.16% 
• DAX 9,988 -27 -0.27% 
• CAC 40 4,452 -19 -0.42% 

The Asian markets details:

• Nikkei 225 15,379 -58 -0.38% 
• Hang Seng 23,541 -5 -0.02% 

Hong Kong stocks seesawed between small gains and losses Monday morning, without the U.S. markets indication. The Hang Seng Index 0,02% is absolutely flat.

Today it seems all indices pretty quiet and till US opening we don’t expect any volatility.

The BFM Assets Team.

DOW JONES IS JUST OVER 17,000! HOLY COW!

What an extraordinary day, as we expected the Dow crossed the line at 17,000 – new historical record. Maybe the 17,000 is just a number, but proves again and again the market is in a strong bullish momentum. SP500 hits new record as well and closed only 15points from the magical 2,000.

Yesterday I couldn’t being checking the whole day the market because I was travelling, but honestly I was super sure, without any doubt, that the employment data from US would push higher to record levels the US benchmark indices. When I turned on my computer at the closing bell, I just needed to basket the nice profit. How was I so sure? The reason is simple, for all kind of bad news the market doesn’t drop effectively, but for any good news the market’s reaction is a strong upward movement in the last couple of weeks and yesterday it happened the same once more. The investors obviously welcomed the strong employment data.

The market said for this great data, “Yabadabadu!” After the data release, the Dow jumped over 17,000 and then stayed comfortably above the 17,000 milestone. It finally was a nice green day:

• Dow 17,068 +92 +0.54% 
• Nasdaq 4,486 +28 +0.63% 
• S&P 500 1,985 +10 +0.53% 

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.

SOME GREAT RULES TO BEAT THE 95%

Below there are four great rules which really do guide me in the couple of last year. Without them I would be in the loser majority of 95%. With these rules we can beat the market and alpha each year and make more than 40% profit consistantly on yearly basis.

We are not Wall Street guys, but we beat most of the traders in New York each year. We follow some basic rules like the followings:

• We never put our all money at one time. We are buying only small positions first and test how the market works. With this cautious system we do better than 95% of traders who start investing with the whole capital. Our highest exposure is never ever higher than 40%.
• We buy indices. They are much cheaper than stocks and not as volatile as stocks. We are not spending more than 0,2% on commissions per year. We are not able to make 10% per day, but we cannot lose 10% neither within a day. If you don’t have 4-6 hours per day to analyze your stocks, trade the indices.
• Just trade the flagship indexes like DJIA, SP500, Nasdaq, FTSE, DAX, NIKKEI. Forget the small markets, they are more pricey and they mostly follow the big indices.
• Keep cash always on your account to be ready for randomly occurred buying opportunity.

These four rules are so simple and easy to follow them but you are going to realize it helps you making better returns.

The BFM Assets Team.

THE MOST HATED RALLY IN THE HISTORY

Yes, true it is not a typing error. Every trader, fund manager and small investors are depressed in a huge bull rally since 2009. Nobody wants to believe this could happen and they are waiting for a huge correction maybe not each day, but each week. They are concerned about FED policy, the condition of economy, inflation, house market ... etc. But this is a bull market, no doubt. The DJIA is flirting with the 17,000 points, the S&P500 with the 2,000 level, we haven’t seen a double digit correction for a long time, Nasdaq, S&P500, DJIA are on historical record levels. The DJIA just did a breakout in 2013 after a 14 years consolidation.

Old runners from the floor who spent decades in the business and saw many up and down cycles say this hate is supremely similar to 1980’s when after a fifteen-year bear market no one wanted to believe is over. But it was and occurred one of the strongest rally until the .com bubble of 2000.

When is the end of this rally going to be? I don’t have a faintest idea. Nobody does. Cause the US market is fairly pricey, but not superpricey and rich and we still see huge possibilities in the long side bullish trend. Why? Since against all the bad news, the markets are steadily just gaining week by week, just take a close look only at the last week horrific US GDP numbers and what was Mr. Market reaction? GAINING FURTHER. That is the behaviour of a bull market.

The BFM Assets Team.

2014 Q2 SUMMARY

U.S. stocks ended June and the second quarter higher as well. During this quarter vast majority of experts, anchors and analysts had huge concerns about the market is in bubble. Maybe, but I doubt that. If it is really a bubble that doesn’t mean will burst any time soon, remember all the market exuberance periods, when the market does 2-5% gains within one day. But recently the market seems not in exuberance. The market is just steadily gaining. The SP500 hasn’t closed up/down by more than 1% in the last 50 sessions. So there is not any euphoria at all.

This market does not discount for any kind of negative macro news. Anything below any 10% drop - we had couples this year - in an index is not a correction just a noise and consolidation by definition. All in all the bullish uptrend is not violated yet so we are expecting more gain in US, European and some benchmark indices further in this recent year.

Summary of Q2:

• The SP500′s 4.7% quarterly advance is the strongest Q2 since 2009
• SP500 recorded the fifth consecutive month of gaining
• Nasdaq closed at its highest level since April 2000
• SP500 made a 1.9% monthly rise in June
• DJIA rose quarterly 2.2%
• Nasdaq gained nearly 5% in Q2

On YTD the picture is more or less the same as Q2 numbers. The market is bullish not as strong as was last year, but reasonably long and is in a strong upside momentum. All indices YTD turned higher after the brutal sell off in January when Nasdaq hit the 10% drop.

This week will be shorter week due to the July 4th holiday on Friday.

The BFM Assets Team.