SUMMER 2014

Just two trading days left from this summer. Yesterday the US and Europen markets stepped back a bit. The S&P 500 finished its three-day winning streak. The market at the early session plunged severely due to the never ending Russian – Ukranian turmoil. Kiev said the wanna-be-cowboy Putin sent regular troops to Eastern Ukraine. Mr. Market didn’t respect that news and turned red. The volume again was extremely low right before the Labor Day weekend in US the trading could stay easily boring further today. All in all, monthly basis all indices showing nice gains in August.

• S&P 500:  - 0,17% (1,997)
• DJIA:         - 0,25%
• NASDAQ: - 0,26%

 

Yes, unfortunately the summer is over, the US Labor Day bells the end of it. It was short as always, wasn’t it? But the market wasn’t really vanilla this summer this season was different. In terms of trading there have been some remarkable things. We have had some serious geopolitical tensions, so it wasn’t a really boring holiday season.

We collected and specified below some special and unique events below, which are not only affected on the summer season, but could effect on the fall as well.

• Ukraine invasion or no invasion question. This has been dominated the headlines and almost each day with us, but surprisingly there is no real impact on the markets. Even the invasion headlines doesn’t make this market go down. The markets don't care about that conflict in longer term. In the old days, war would always lift the market.
• Geopolitical turmoils around the globe – Ukraine, Gaza strip, Ebola…etc.
• Financial risks occurred – Russian embargo effects on German economy, ECB more and more serious about some QE, US GDP growth is very impressive, Euro region GDP is disappointing.
• Despite the holiday season and the low volumes the S&P 500 and Nasdaq hit new historical highs.
• S&P 500 hit the 2,000 milestone level the first time in the history.
• Trading volumes were extremely low especially in August.

Which risk and fear stay with us in the rest of the year, we don’t know yet. I bet many of them stick with us and some new are going to occur. That is the general rule of markets without fears Mr. Market can’t go new records.

The BFM Assets Team.

SHOULD I BUY OR SHOULD I WAIT? THE GOOD TIMING

After this August furious rally, the one million dollar question of all investors comes up “Buy now or wait for a correction?”

Yesterday U.S. stock market finished flat. The S&P 500 stayed around 2,000, edged up 0.10%. Trading was the slowest for any full session this year. The question for vast majority of traders now would be “is this consolidation a bargain buying opportunity or not enough yet?” They want to pick up the lowest tick of a chart and looking for a perfect timing moment. Wrong, the timing the market is a fruitless effort. The perfect market timer doesn’t and can’t exist. There is no crystal ball or a magic formula that allows for perfect market timing.

I am neither a perfect timer Nostradamus. I do believe that looking for a perfect market set-up equals with Astrology. If you are looking for a perfect buying opportunity usually two typical things happen.

Firstly, you are just watching and follow with your eyes the rally and crying each day why are you out. Secondly, everybody is in already around you and you are frustrated that each day you are loosening if you are out, so wait and wait for a correction which doesn’t come and finally you will buy at the top. History tells us how this attitude ends always, in tears.

As Peter Lynch stated about market timing is sobering: “People spend all this time trying to figure out "what time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, and your return would have been 11.7 compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6. That's the only difference between the high of the year and the low of the year.”

Number of folks would imagine that only catching the lows would create a huge performance advantage versus the random timers. I bet many of you assumed buying only at the highs would create losses, but statistically proven it is not true in longer term. Surprising? Yes, it is.

All in all, don’t waste your time and energy looking for the best timing and perfect opportunity, just buy it with a reduced position size and wait for the reaction of Mr. Market. If the market is in your favour you can add more any time, it is a free world.

The BFM Assets Team.

LET'S GET THE PARTY STARTED – SP 500 CLOSED ABOVE 2,000

Never comes the perfect set-up point when the market like now is in full steam ahead. Almost without any consolidation and correction all US and European indices have been gaining day by day and all benchmarks are moving forward. I wouldn’t say the party just got started, but there is still room for more gains in indexes.

Tuesday ended stock markets higher again. S&P 500 closed first-ever above the 2,000 milestone level and touched the intraday record at 2,005. Finished 30th record close this year and gained YTD 8.2%. DJIA touched intraday record at 17,106, but closed lower just about 16 points below all-time high. Nasdaq had highest close since March 31, 2000 again.

• DJIA: +0,17%
• NASDAQ: +0,29%
• S&P 500: +0,11%
• RUSSELL: +0,85%

The Russell has been leading the gains this month, the best performer between US indices. We have built huge positions in Russell in July and have been overpositioned in that index.

The S&P 500 hits a new high, but what is the outlook? In terms of technical side hard to forecast because the chart is in a white and uncovered territory. What we can do in these situations just hold the long positions until the bullish trend and momentum are not violated. When does it come? I don’t have a faintest idea.

The index easily could back test the 1,993 key support level. Don’t be scared if that happens that won’t be a disaster, the bullish trend is still intact. Normally we don’t forecast, but now there is a temptation. We are expecting the S&P 500 is going to finish the year at least at 2,050. Why are we optimistic? Just look around in the world and you will realize US seems to be the only safe place right now geopolitically and the investors love the complacency. And, the retail market is still dead the lack of enchantment with the Wall Street could bring more gains ahead as many small investors come forward.

The BFM Assets Team.

OUR BIGGEST ENEMY IN THE TRADING

Yes, Ourselves! Maybe some of you are aware of this, but during the trading we tend to forget that rule and our biggest bias is our mental behaviour and mental weakness. This is the real enemy not the broker houses or the other traders and investors. You really want to know what your biggest mistakes are – just take a close look at your portfolio – and ask help from Advocatus Diaboli. If you spend few days or weeks to analyse precisely your track records, you can find dozens of mistakes which need to be fixed to be better investor.

I suppose you will find the following most common mistakes:

• You buy at highs and sell the lows
• Super active trading style. You trade more than it would be necessary.
• You are reshuffling your portfolio more often and change the winners to the losers because they seem cheap. 
• You do not find any rational reason to open a position just opened because you heard something on TV or from one of your friends. 
• If you have profit on any position, you will cover as soon as possible and too early.

All these mistakes listed above help you destroy your performance. Maybe you are not a real loser – you can say –, but if you make better this list, your return will increase certainly. And why are we doing these things? Because we are irrational, folks. An average investor does not understand those points because it is against the human behaviour, but you can do it better, just start to try it.

The BFM Assets Team.

S&P500 AT 2,000 POINTS!!!

Believe or not, despite all concerns and fears the S&P500 hit this morning at future market the 2,000 key level. Do you still have any doubt there is a bullish market out there?

Friday, despite the uprising news of Ukranian convoy never ending story the European markets are plunged seriously in the morning. US benchmark ignored all the Russian - Ukranian news. Basically was quite a slow day and mostly closed flat the indices in Wall Street. After Thursday record close of S&P500 the Friday numbers were the followings:

• S&P 500 -0,20%
• DJIA -0,22%, closed above 17,000
• Nasdaq +0,14% still keeping the hot streak rally

The three benchmark indices achieved their third weekly gain in a row. The S&P 500 and Nasdaq both advanced by 1.7% for the week, while the Dow rose by 2%.

In the afternoon the Yellen and Draghi speeches first pushed lower all the US indices, but an hour later they recovered and closed around break even, which is not bad if you take consider the turmoils around the globe.

What is the scenario for this week? We are expecting more gain in indexes specially Europeans in DAX and CAC40.

The BFM Assets Team.

ALL TIME HIGHS

U.S. stocks advanced again Thursday and continued the hot streak period. The S&P500 made its fourth straight daily gain and closed at a record high. Gained +0,29% and finished at 1,992, topping its July 24 finish to set its 28th record close in 2014. The four-day winning streak is the longest in the last two months.

The Dow Jones rose +0,36% to 17,039, pushing back above the 17,000 level to log its highest close since July 24. The index is still off around 0.6% from its all-time closing high.

The Nasdaq rose +0,12% to 4,532 ending at its highest level since March 31, 2000.

All in all the markets are on record levels. Most of the investors are scary enough about these levels, but is it really abnormal this gaining? An average investor starts to be scared when he or she hears the record word. They remember well the all-time highs in 2000 and 2007 and both followed by 50% declines. In their mind the record is the one of the scariest phrase.

But records and new highs are perfectly good signs. Those show the strength of the bulls. Since 1950 there have been more than 1,100 all-time highs closings in the S&P. That is 6.8% of all trading days or roughly 1 out of every 15 days. 70% of all-time highs occurred not surprisingly in the bullish rallies during the 50s, 60s and 90s decades.

How long stays the rally with us. Nobody knows, but just try to follow the momentum and don’t be scared about the higher and higher prices. The stocks don’t have to crash merely because they hit all-time highs.

The BFM Assets Team.

BAD NEWS ARE GOOD NEWS MANTRA

The paradox is resonating on the bad macro news last week from Europe. Europe’s GDP failed to grow generally, the powerhouse of European economy Germany is in negative territory too. The annual growth rate is only one-third of US performance. The real poor performance came out from Italy the third biggest economy in Euro zone.

The immediate market reaction was the lower yields of German bunds and breaking through the 1% level. Equity market has been rallying since that day massively in Europe. Why? The market’s expectation is that ECB will have to begin the monetary stimulus, which will create huge liquidity for the European stock markets. The poor economic performance pushes ECB further to do more and the investors understand that phenomenon. So the paradox is imminent worse for the economy better for the stocks.

Bad news from Main Street means good news for Wall Street recently. The media discuss about that this paradox as a new feature, but it is not really true. This pattern is not really new that is a long historical symptom when market wants to go one direction. Those days Mr. Market has a selective hearing, ignore the news which against his direction. This phenomenon already mentioned by Dow and Livermore a century back. The market only absorb those news which help moving its direction and could excelarate the right momentum.

The BFM Assets Team.

BLACK SWAN

Last Friday was a real black swan event. US stock markets started the session in massive green. Europe was in a huge gain also but in the afternoon had arrived the news about some clashes between Russian and Ukrainian militaries and the market plunged rapidly and closed most of European indices in huge red.

• DAX - 1.43%
• CAC 40 - 0.75%
• FTSE MIB - 0.29%
• IBEX -0,71%

That was a real black swan event. It always comes out from the clear sky and destroyed all the optimism on the floors.

We have now so many geopolitical turmoils like the Islamic militants are seizing Iraq, Russian troops are marching on the border of Ukraine, the Ebola outbreak in Africa and the Israel vs. Hamas conflict in Gaza. In those conflicts any day could occur easily any bad news which effect massively to the markets. But those are only able to change the direction for hours or days - as you see by now all indices recovered from Friday lows – because the major trend is bullish and the winning side is the long one.

This kind of extreme foreign exposure of the markets is pretty rare, but we have to live with that. That is the part of this business, the choppy market some days. Obviously the US and European economies aren’t immune to it. Specially, there are so many concerns about German economy. Europe's largest economy is the most vulnerable because tightly linked to the Russian natural gas. But I doubt that could come any recession in Europe.

This morning’s recovery after the opening in DAX. Nice, isn’t it?

The BFM Assets Team.

SOMETHING SMELLS RIGHT

If you take a closer look at the last couple of days rebounce of US stock markets, you can find great signs of bullish momentum and more rooms for potential rally. We are pretty optimistic about the near future and expecting the US indices get back to the previous record levels.

Yesterday US stocks closed higher for the third time in four days and indices gained again significantly. The Dow returned to positive territory on year to date and lifted up to +0,45% profit. All the sectors closed Wednesday in green. The benchmark indices are bouncing back from their last week lows and by now the markets are only 4% from their peaks in July.

• Dow +0.55% 
• Nasdaq +1.02% 
• SP500 +0,69% 

At the SP500 chart there is a clear break out event. The index crossed the previous resistance level at 1,935 than back tested on Tuesday and jumped higher on Wednesday so the area is opened up to the 1,970 key resistance level. There is a relevant chart pattern too on the SP500 chart, the reversal head & shoulder one, which is also strengthening the further bullish momentum.

The BFM Assets Team.

EUROPEAN RALLY COMES?

Specially in DAX and CAC40 we are expecting huge gains in the following days and weeks and try to build up some significant positions in both assets.

Yesterday both indices suffered severe losses and fear was back after two days of bullish rally. The investors turned pessimistic again for one day. The ZEW index report yesterday was disappointing fell to 8,6 far below an estimated 18.

• CAC40 – 0,85%
• DAX -1,22%

But all in all the scenario seems really promising for both benchmark indices against the Russian sanctions and fears and uncertainties in Ukraina.

Technically in DAX, yesterday was a consolidation day after two days of rebound, which is quite healthy technical pattern and today needs to come a conformation of the long rally. The index needs to close today over the 9,175 resistance level. If it is taken the area would be open up to 9,400 area.

The BFM Assets Team.

INVESTORS ARE IN RISK-OFF MOOD

Yes, pretty much. Against the yesterday rally the investors are still super concerned and sceptical about any rebound or any rally in stock markets. On Monday the SP500 erased the declines of the previous four sessions. The typical retail investor in US hold the big money in bonds or in the bank accounts not in stocks and investment funds.

The two relevant sentiment index is at yearly low levels. Both are turned extremely bearish in the last two weeks.

AAII Sentiment Index:

• http://www.aaii.com/SentimentSurvey
• The bears are in the biggest numbers since last 2013 August.

CNN Money Fear & Greed Index:

• (measured from 0-100) dropped from 95 to 5 in just two weeks. 
• http://money.cnn.com/data/fear-and-greed/
• A month ago the vast majority was greedy, but curently the rate is at 8 which is in the extreme fear territory.

There are many geopolitical reasons why the sentiment is so negative, but the strange thing that technically there is not any reason for that kind of scepticism. The US indices haven’t suffered big correction last week dropped only around 4%, which is not the end of the world. But the investors still believe well when they burned out in 2008 and 2009 and they don’t want to happen that again.

People are all in all are so desperate and they untrust in Mr. Market. They don’t really trust neither in QE tricks and FED’s monetary policy. They don’t believe in the Mainstreet macroeconomic good numbers and data.

But maybe they are all wrong and the market will go new highs. Who knows? But it is worth to pay attention to these remarkable sentiment facts.

The BFM Assets Team.

FEAR IS GOOD

Usually too much fear means that the investors are in risk-on mood and after a while the market needs to turn into rally mood. Friday and the whole last week the market was choppy, investors are concerned about the major global conflicts like Iraq, Ukraine and Gaza.

Therefore, the negative sentiment of retail clients is pretty pessimistic and US equity funds endured 16,4$ billion in outflow last week. That is the biggest exodus of funds since 5th of February. I just note here the best rally occurred this year in February.

Finally Friday all major indices broke the cold streak of decline and turned green. The volume was thin due to the holiday season, but the day was pretty good for stocks. Dow posted its biggest one-day point and percentage gains since March 4.

• S&P 500 +1.2%, for the week + 0.3%. 
• DJIA +1.1%,, for the week +0.4% 
• Nasdaq +0.8%, +0.4% gain for the week 

The small-cap Russell 2000 outperformed the other benchmarks and is firmly in the green for the week though +0.7%, bucking the negative trend. That’s certainly a change of pace for the Russell, which is still underperforming the other indexes for 2014 YTD.

Technically the Dow Jones made the break Friday so the way is opened to north. Our next resistance is at 16,880.

The BFM Assets Team.

WAIT FOR THE CONFIRMATION!

We have been asked specially yesterday what we are Doing now in such a falling market, when the market falls like a stone.

Like this - yesterday and tonight closures:

• DOW -0,46%
• SP500 -0,53%
• Nasdaq -0,46%
• Nikkei -2,98%
• DAX -1,29%

Our answer is simple, still wait and keep your patience and wait for the confirmation of breakout on the long side – as we told this Monday. Until the resistance of 3,900 at Nasdaq is not taken, don’t buy or sell, don’t jump in and out, just wait for a conformation on the daily chart and enjoy the bargain price next week and the summer, beaches and girls.

The BFM Assets Team.

SLOW DAY... THAT EVEN MEANS TROUBLE

Finally the big bounce hasn’t occurred yesterday after the huge sell of last two weeks. The cat was still dead yesterday. The US stocks started the trading firmly in red:

• S&P 500 -0.4%
• Dow -0.3%
• Nasdaq -0.6%

During the session all major indexes all bounced off their intraday highs and finally they consolidated around breakeven:

• S&P 500 — +0.03points
• DJIA — +0.1%
• Nasdaq Composite — +0.1%

This consolidation and pretty boring trading session might mean good sign for today some breakout. After 8 days losing out of 10, the DJIA consolidated for the second day, so maybe the prices are getting to be good bargain for traders. Let’s see today the market’s reaction. The investors generally are still concerned about geopolitical risks and fear of European economy’s weakness, just think about the yesterday disappointing Italian’s GDP report.

Technically still valid the breakout level on Nasdaq the 3,900, this key resistance level needs to be taken to see some significant gain on the long side.

The BFM Assets Team.

FEAR DRIVES THE MARKETS

The endless scary headlines were driving investors crazy yesterday too. The traders nowadays have many fears like Russia, Gaza, FED interest rate policy, Ebola … etc. They really start to worry about some huge geopolitical turmoil and those freak them out and turn them into risk-off mood. As the old rule says “Fear sells, happiness buys.”

U.S. indices closed sharply lower yesterday following reports that Russia is building up its military presence on the border with Ukraine. Finally, it was only a gossip, but was enough to push US markets in the deep red territory.

The close:

• S&P 500 -1%
• Dow -0.9% 
• Nasdaq -0.7%

The Dow Jones has fallen in 8 out of the past 10 days, so those 10 days passed almost without any rebound. The picture is more complex if we see:

• Dow is -4.1% its July 16 record close
• Dow is -0.9% in the year to date
• Dow is its lowest close since May 20

Will markets rebound after this selloff? For sure that is only question of time. If something goes down needs to come up too. Technically seems still the same key level on the Nasdaq chart. The index should close above the 3,900 level, if it would be taken the rally could start again.

The BFM Assets Team.

GREEN DAY AGAIN

After the brutal last week, US benchmark indices turned into green finally again on Monday. They gained and rallied US stocks after the S&P 500 endured last week its worst weekly percentage drop in two years.

• SP500 +0,7%
• DJIA +0,5% (YTD still in negative with -0,04%)
• Nasdaq +0.7%
• Russell 2000 +0.9%

This week will determine whether the market break up or break down. During this volatile week we are going to have a proper answer for that question. The question is, we are facing to rally or decline. What to do now? Just patience and watching and waiting. We should expect some extreme volatility for this week so you should fasten your seatbelts and reduce your position sizes.

The reason of volatility is the fear. After a great rally, the SPX hasn’t seen a 10% correction in over three years, and hasn’t seen more than a 6% correction in nearly 20 months vast majority of investors are scared enough. The investors remained cautious over the timing of the Federal Reserve’s interest-rate hikes too since last week FOMC meeting.

In terms of technical analysis the Nasdaq should close above the 3,900 key resistance level on the daily chart and if that level is taken that might be a good sign for bulls.

The BFM Assets Team.

OSTRICH-EFFECT

"I am positive", you have realized this affects many times in your trading carrier, right? It happens when your portfolio or positions are going against you.

In the trading there is pleasure and pain when we gain or lose. This pain and gain come from the fluctuation of our portfolio and we feel good when our portfolio increases and badly when loses. In other words, the up and down fluctuation of our account causes direct effect on our emotions. 78% of investor is functioning with ostrich-effect, they want to avoid the bad news and close out the negative effects.

They prefer to pay attention to their positions when they expect to see good results and gains. They are more often log into their account when the media filled by good news about the market. The analysis based on 100.000 accounts at Vanguard group, so it was a wide scale report for two years.

What we are doing at ostrich-effects, the followings:

• We don’t look as often on the account as normally because we don’t really like to see the size of the damage.
• We start to call that position a „long term” one. Honestly, I have never met any trader who doesn’t want a „short investment” with a quick profit. Who is the idiot who likes the long stressfull period waiting for the profit. 
• Ostrich-effect is stronger in men than in women.
• When the investors don’t pay attention to their portfolio it means they are trading less. In some cases protect them from bigger losses and doing more stupid things like get-in get-out frustrated trading style. Ostrich-effect helps them not overreacting the severe market drops. 
• Between ages 20 and 40 the traders are affected more by ostrich-effect.
• Males log into their accounts roughly 50% more frequently and trade 50% more than do females when is performing well, but when the account turns into trouble they tend to ignore checking the account more often than women.
• Investors should be less likely to log in and check their accounts after the news media has reported that the market went down and higher returns should induce more attention.
• Investors are more likely to log in when the market was up over the last day.

All in all we tend to close our eyes when the train is coming and just reopen again when the train is leaving again and the market and our portfolio gets back into positive track.

The BFM Assets Team.