MOM AND POP IN 2014

Mom and pop is referring to inexperienced investors who play the market casually. Beginning of 2014 they were asked about their expectation of different stock markets. They had to forecast which region will be the best and worst performer in 2014. Closely to the end of the year is a good time to check those typical small investors had right or they were wrong. I have to tell you first of all that they are mostly wrong, that is statistically proven and the pattern occurred more or less the same this year again.

This list was made in January – from best to worst:

1. US
2. EU
3. Japan
4. UK
5. China
6. India
7. Russia
8. Brazil

This week Deutsche Bank came out with this chart below of the winners and losers of the market in 2014 to date. And the chart shows the current situations in the markets – from best to worst:

1. India
2. China
3. US
4. EU
5. Brazil
6. Russia
7. UK
8. Japan

All in all, moms and pops were again mostly wrong, the closest shot was Russia. Here is the 2014 January and November scores and rankings:

Recent reality            January 2014

1. India                        6.
2. China                      5.
3. US                          1.
4. EU                          2.
5. Brazil                      8. 
6. Russia                     7.
7. UK                          4.
8. Japan                       3.

They said India will perform poorly, but the fact is that it has been the best performer in 2014. They were really sceptical about Brazil, but that was not a bad year for Bovespa. They were positive about Japan, but finally the Nikkei is still in -4%.

So being contrarian against the mass might be a good strategy? Yes, I strongly recommend that.

The BFM Assets Team.

DEJA VU

You might have Deja Vu feeling if you hear news from stock markets day by day. Almost each day there is a new high and closes the market on record over and over again. Each day seems to be the same. Like in the fascinating and one of the most hilarious Bill Murray’s movie “Groundhog Day” when he finds himself in a time loop, repeating the same day again and again.

https://www.youtube.com/watch?v=tSVeDx9fk60

The market works like that recently. At this chart of SP500 below (by Michael Batnick) the red lines are indicating the new all time high prices in 2013 and 2014. The funny part is the last 5 weeks, it is almost the entire November is in red.

The bullishness of the recent US indices are brutal and has never happened before in the history. The S&P500 has spent above its 5-day moving average for 28 straight days. This is a new record and surpassed the prior one of 27 days from 1928.

All in all, this monotony might be boring for most of the investors, but I love the boring staff if we make money. I love to be bored while making money than being thrilled, but burned out. This is the magic of trend-following method that you are in the big moves and following the winning side. Be in the market is the bottom line since honestly nobody knows when comes the big rallies, so follow the trend and ride the waves.

The BFM Assets Team.

STAR WARS

Usually we are not analyzing and holding positions in any certain stocks neither in blue-chips like Walt Disney. But recently we found an exception, namely the new Star Wars trailer; the early 88-second trailer of Star Wars Movie: The Force Awakens can be seen in 30 theaters across North America beginning this Friday morning, November 28 and in December 2015 comes the movie in cinemas. Hurraaaahhhhhhh!!!

In 2012 the Walt Disney acquired Lucasfilm for $4 billion and announced that it would produce three new films, with the first film, Star Wars: The Force Awakens. All of the previous 6 films have been huge box office successes, with the overall box office revenue generated by the Star Wars films totaling $4.3 billion, making it the fifth-highest-grossing film series. So our bet is that the Walt Disney stock is a great investment opportunity for middle and long term if you are not thinking investing for days or weeks. The fiscal success of the new series is more than obvious which will turn Disney into a money generating giant in the following 10 years.

Technically the WD has gained since 2009 more than 230% and has massively overperformed the DJIA index as its benchmark, but we still believe it might be a good long-term investment for a decade. Think about that and enjoy from Friday the new trailer.

The BFM Assets Team.

MOVING AVERAGE? IT FORECASTS ANYTHING? OHHH, GOSHHH...

Basically it doesn’t forecast anything. I know millions of investors, traders who believe out there in MA’s, but it is totally worthless, it only shows the past not the future as Peter Lynch’s great bonmot says “Technical analysis is a great stuff to forecast the past.” Same for MA, it is brutally useless in trading. Doesn’t give you any more information about the future than the price itself, it is only able to tell you the past how performed, it was bullish or bearish.

For me that feature of MA is more than enough. In my view, if you understand the main direction of the market you know more about the market than 90% of investors. For me is crystal clear the indices in US and Europe are bullish, there is no doubt about that. That is why we are only on the buying side since we are trend followers.

Our market view is supported also by Moving Average. Indices ended last week at new records again and seems the rally unstoppable. The S&P 500 is closed above its 5 day MA for the 26th consecutive day last Friday. The best all-time streak was 27 straight days in 1986. And, what happened in 1986? The great bull market continued further unstoppable which had started in 1982. That secular trend rally lasted until 2000, for more than 16 years. Is there any correlation? We don’t know yet for sure, but one fact is obvious that this last 5 weeks rally and the stormy V-shape recovery only possible to happen in a very bullish momentum and bullish market conditions.

The BFM Assets Team.

“THE MARKET CAN REMAIN IRRATIONAL LONGER THAN YOU CAN REMAIN SOLVENT”

That is a great quote from J. M. Keynes who basically was a great investor and undoubtedly understood well the psychology of Mr. Market. During the last five weeks rally the vast majority of traders were convinced the market had gone too much up so they opened shorts and stopped out, sold again and stopped out again. They burned out week by week because they forget the great rule of Keynes. If the market goes in euphoria could go much farer than is rational. To predict the top of the rallies is the hardest way to succeed.

The stock markets in US ended the week in rally mode Friday. They ended their fifth-straight week of gains on overseas central banks’ stimulus. Friday, China's central bank made its first interest rate cut in more than two years and the European Central Bank took action to stimulate the economy as well. The cutting rates and central bank stimuluses are supporting the equities in major markets. China’s central bank cut its one-year loan rate by 0.4 percentage points and the ECB began buying asset-backed securities Friday, expanding its quantitative easing program.

The DJIA rallied and registered its best one-day gain in November and closed again at record price for the 28th times this year. Gained the DJIA more than 1% over the week.

• SP500 +0.52%
• DJIA +0.51%
• Nasdaq +0.24%

This rally of US markets predicts further gains in November and December. That is statistically proven it could be even better. In the 20 times when the S&P 500 has enjoyed moderate gains (between 0 and 15 percent) in the year to Thanksgiving, the S&P has added to those gains 18 of 20 times. If the S&P was up 10 percent or more at Thanksgiving, 68 percent of the years were positive, with those 28 years averaging a healthy return of 2.4 percent between Thanksgiving and New Year's. So, we have the reason why still buy the indices.

The BFM Assets Team.

I KNOW IT’S BORING, BUT SP500 AND DOW CLOSED ON RECORD AGAIN

I understand if you are sick and tired by the records, which seems to me a weekly permanent pattern. The Dow Jones ended the day again at a record for the 27th time this year, the S&P 500 closed at a record for the 44th time, almost each week have been statistically new record. Thursday stocks turned in green after the U.S. jobless claims data that fell more than expected at 291,000, which is the best data since 2000.

All in all the US indices finished the session slightly higher. The gains on the S&P 500 and the DJIA were enough to send the indexes into record territory again.

• S&P 500 +0,20%
• DJIA +0,19%
• Nasdaq +0,56%

Thursday the Russell 2000 overperformed all other indices with +1,1%. The small cap index made a nice and strong rally. There is a huge and wide optimism between the investors, but the latest AAII data show some weakness in bullish sentiment, which might be good news for more gain, while still out there are many sceptical investors who later will be buyers.

http://www.aaii.com/SentimentSurvey?adv=yes

The bullish sentiment is still over the long-term average (38,9%), but the good sign is that since last week it has been moderated by 8.8%. Ceterum Censeo the bulls still have more room to run further.

The BFM Assets Team.

WAITED AS THE RAIN IN MAY...

... I mean some consolidation in US indices, after one of the best 4 weeks rally in the last 5 years, plus after the 4 winning days. The SP500 ended its four-day winning streak yesterday. US stock markets little changed on Wednesday, they all closed near all-time highs after the FOMC meeting. The FED voted to end of QE, the bond buying program by a 9-1 vote and repeated again that they are going to keep the interest rate close to zero for a considerable time. The considerable could mean 2015, so next year the FED possibly will start to raise the rate. Frankly this announcement was not a really significant announcement; the markets haven’t moved much on the release.

• S&P 500 -0,15%
• DJIA - 0,01%
• Nasdaq -0,57%

Technically really nothing to say more since yesterday, we are still holding out long positions specially we are really bullish in DAX and CAC40 in Europe.

The BFM Assets Team.

SHHH! DON’T SAY TOO LOUDLY THAT THIS IS A BULL MARKET!

You have to live on Mars if you don’t see that. I am still amazed day by day when many smart guys are telling me that they are planning to open short on European and US indices. Ok it is a free world, anybody can do whatever they want, but I don’t get it why they are trying to catch up the short side if the long side is the winner one. This is a brutal bullish market week by week SP500 and DJIA hit new record again, Dow Jones made 26th times this year and 43rd time the SP500 closed in record territory this year. What I can only recommend “Don’t argue with the tape.” Now the tape says pretty clearly just buy this market don’t short.

Yesterday European breakout from 10 days ranging was a clear sign of bullish momentum. In the last 10 days the volatility was extremely low, it is normal before the storms. The SP500’s volatility was extraordinary low, was one of the lowest one in last five years. This usually happens in December or in August and typically before big moves and rallies. So we are expecting more gains in European indices like FTSE, DAX and CAC40.

What will come? It is more sense for more gains for sure. The yesterday break out in Wall Street and Europe was only a bell for more records. The bulls have been so strong in the last four weeks and we are forecasting they stay with us further. Would it be bubble or there is any turning point I don’t think so. The bulls just started the ride in middle terms.

Take a look at the chart and tells you better than 1000 words what is going on now.

The BFM Assets Team.

JAPAN IS IN RECESSION, WILL NIKKEI GO DOWN?

Yesterday came an unexpected news from Japan that its economy dropped by 1.6%. In Q3 means officially Japan is in recession. In the prior quarter the GDP declined by 7.3%, which is the definition of a recession. After this disappointing news the Nikkei suffered its biggest one-day tumble closely 3% this year. Due to this recession anxiety the US markets stayed flat, which is not a real bad news in terms of sentiment. This means Nikkei will go down and we should sell? I doubt that. I would say the opposite of that.

Tonight the investors almost deleted the whole Monday loss and Nikkei gained 2.2%. The world’s third largest economy recession not really scared the investors for more than 24 hours. It is a good sign for more gains. Don’t forget the Main Street and Wall Street they are not walking hand in hand, the stock markets can perform really well against the ugly fundamentals.

Monday Japanese Prime Minister Shinzo Abe called for tax cuts and cash handouts as part of a stimulus package valued at more than $25 billion, which would mean more demand for stocks.

The Nikkei this year on YTD performed really well, and just broke out from the huge triangle pattern in October, so the long side is widely opened for more gains technically.

The BFM Assets Team.

SANTA CLAUS RALLY IS COMING?

US indices are for four weeks in a row in green. US stock markets still managed to post a fourth-straight weekly gain. Friday the main benchmarks switched between small gains and losses throughout the trading session, was a bit muted day. The markets and investors are optimistic also about the cheap oil.

• SP500 +0,12%
• DJIA -0,10%
• Nasdaq +0,18%

The SP500 and DJIA gained +0,4% over the week. The Nasdaq gained +1,2%. There are some optimism between investors about the about the cheap oil and good holiday-shopping season. That retail sales for one-third of consumer spending the main engine of U.S. economic activity.

The market seems pricey but in longer term there is still free place enough sentimentally and technically as well in US indices. If the Xmas rally means more gain in the following one and the half month we can say yes and we are expecting more gains until Xmas, especially in European indices like DAX, CAC40 or FTSE.

The BFM Assets Team.

SOME KINDS OF REST AFTER THE RALLY

US indices and stocks ended a choppy session yesterday, all indices were quite flat finally and nearly unchanged. They tried to struggle to stay close to their record levels. The markets were breaking the five-session streak of records.

• DJIA – 0,02%
• S&P 500 -0,07%
• Nasdaq +0,31%

All in all, the market was really slow Wednesday, without any major economic report, the indices moved without any direction. The investors needed to pause a bit after a one-month V-shape great rally. The S&P 500 gained within four weeks more than 9,4% and fully recovered after the sharp drop in September and October. The S&P 500 closed at 40 new records and the DJIA is strong either and hit its 24 closing records this year so far. Don’t forget only bull markets make new record and highs, it sounds simple, but most of the investors tend to forget that rule.

In the technical side the Dow Jones is just simply staying in record territory, back-tested the 17,300 key resistance level last Tuesday and recently stays firmly above that level.

The BFM Assets Team.

THE FLOOR IN OLD DAYS

I don’t know how you are with that, but since first time I have read the legendary Livermore’s book the “Reminiscences of a Stock Operator” I always have nostalgia about the old days of Wall Streets. Now the BI collected some fascinating pictures about the Wall Streets some decades ago. Those days there were no Bloomberg terminals or any computers just the tape was ticking fast.

Enjoy the great pictures:

http://www.businessinsider.com/old-wall-street-trading-technology-2014-9#

The BFM Assets Team.

THE MARKET IS REALLY PRICEY?

There many too investors who convinced the market went to much up and they are getting more pessimistic about the bulls, specially after the great last month rally. The DJIA has come up closely 2.000 points since the middle of October and stays on record level. Day by day hits new historical highs. They do believe the market is overvalued and it is in a bubble phase and pretty soon that needs to burst.

They have anxiety about the state of the financial markets and they tend to catch the short side of the market. They burn out always in this condition of the market. In the last 4-5 years I have heard thousands of times the market is too pricey and needs to come a correction. Yes they are right many cases, because in the long bullish secular trend what we are experiencing now has correction periods, but the trend is obviously bullish and the bulls stay with us for many years more.

We are really fascinated by this chart which gives us bigger perspective and shows the big picture about the stock markets. This one chart by Merrill Lynch BofA tells more information than thousands of words that the secular bull market just got started.

The BFM Assets Team.

ASIAN OUTLOOK

The weekend is over and Far- East markets have closed this morning in mixed colors.

• Nikkei 225 16,781, - 0.59% 
• Hang Seng 23,745, +0.83% 
• Shanghai 2,474, +2.31% 
• Sensex 27,863, -0.02%

Asian stocks held firm Monday trade after great trading in week in U.S. Japan's Nikkei slipped slightly 0.4% as the yen rebounded on profit-taking in the dollar, maybe some investors took some money off the table after the market's rally to record highs. Hong Kong index, Hang Seng posted a solid rebound on Monday after the index had been declining for five straight sessions before Monday. Over on the Chinese mainland, the Shanghai Composite Index rallied 2.3%.

Technically the Nikkei has done an impressive rally since middle of this October; the last closely one month was one of the best in the last 3 years. Meanwhile recently we can experience some consolidation which might retest the 16,350 key support level and then it must turn back into bullish mood. This backtest might happen still this week.

The BFM Assets Team.

SOME SENTIMENTS ABOUT THE MARKETS

I know it is very subjective, but I want to pick some examples how the mass out there think, feel about the market. I always try to understand the sentiment of the crowd and the investor’s society, but it is an impossible mission. The sentiment surveys tell us what the majority of investors guess, the market is bullish or bearish. That is pretty important to know the sentiment of the crowd in this case you won’t be the part of that losers game. Typically you have to do the opposite what mom and pops think about the market. Here below I just randomly collected some funny and short forum comments about their expectations. These comments are reacting on the bullish rally in the last two weeks:

• The Market needs to go down. Not based on fundamentals or technical (those cases can be made for both). No, it needs to go down because I majorly shorted the S&P today.
• The insane, criminal fraud continues.
• I have been out of the market since 2007. Watching it climb is fun. But I know what would kill this market. If I start investing again...
• just waiting for the pull back.

The other sentiment indicator is the AAII weekly report. It says the retail investors are overwhelmingly bullish. The historical mean in bullish sentiment is at 39% and recently we are at 52,7% level, which seems relatively high. So all in all the picture is not clear and obvious, there is quite a big noise. You see the market is so difficult to trade with because the humans are behind it and it is an extraordinary hard task to read their behaviour.

The BFM Assets Team.

STOCKS, GOLD, AND OIL

The markets were not really fazed by the republican success in midterm elections against the democrats. Actually the rally continued on Wall Street and the DJIA hit new high again yesterday and S&P 500 came within a point from doing the same. The DJIA hits its 20th record close YTD 2014.

• DJIA: 17,484.5, +0.5%
• S&P 500: 2,023.5, +0.5%
• Nasdaq: 4,620.7, -0%

The DJIA chart below is obviously shows the strength of the bulls.

Gold is falling like a stone. Gold was down yesterday by 1,9% and closed at 1.145$, there is no doubt the short side trend is the real direction and pretty soon we are going to see the gold metal below 1.000$, maybe still in 2014. Technically the support is at 1.200$ level was taken out and door is opened for more downside movements. Until the stock markets are bullish there is no real relevance of any long side rally of the gold or silver market.

The WTI crude oil after a massive plunge since September, the American sweet crude oil prices jumped nearly 2% Wednesday after the inventory report. In terms of technical analysis the 80$ is a key support level for the crude oil, so we are expecting some rebound from this level next week and some kinds of consolidation around 80-90$ range in the next following weeks later on.

The BFM Assets Team.

CLOSE TO ALL-TIME HIGHS

All in all the last 2-3 weeks were great in US indices and we have experienced a nice V-shape recovery, the Dow has gained 7.9% from its mid-October closing low, and the S&P 500 has advanced 8%. We have come so fast within the last two weeks. Yesterday the rally stopped for a while; however the DJIA advanced again and stays close within striking distance of all-time high. The stock markets are slightly muted so far this week, after weeks of wild trading.

If you are a bargain hunter and you want to try yourself in some undervalued markets and looking for good bargain indices please check out this list, which shows the lowest P/E ratio countries.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/11205446/The-worlds-10-cheapest-stock-markets.html?frame=2721254

Yesterday data:

• DJIA +0,1%
• SP500 -0,3%
• Nasdaq -0,3%

We have had a massive rally so recently the market does some consolidation, which is normal, the market a bit tired by now. Technically the 2,010 key support level was tested yesterday in S&P 500, so we could see more gains this week. But we don’t see honestly at which price might the rally finish and is impossible to name any resistance level due to the record levels. What we see the bullish momentum is strong and valid for more weeks further.

The BFM Assets Team.

BEST 6 MONTHS COMING?

The old calendar says on Wall Street the period from November to April is the “Best 6 Months.” During this six months period in last several decades markets made massive gains. This is the opposite the old one of “Sell in May and Run Away,” which recommend forget the market in May and only get back in October.

In the table below I have listed out each instance. Honestly I am a real fan of seasonality like Xmas-Rally, but empirically has worked this system in most years, which statistically too relevant to ignore as a rule. Below here is a chart since 1960, the average run-up was 18.7% and the average drawdown just 3.3%.

The BFM Assets Team.

I DON’T KNOW

I suppose this is the most worthwile sentence in trading. I have met hundreds of trader they were always sure about the direction if oil, EURUSD or S&P and I never heard from them I don’t know. They were convinced and sure about their forecasts and that is the reason why all of them are loser traders. We have to be brave enough in investment business to say many times if we are asked about the market – I don’t know.

This is one of our biggest bias is the Dunning-Kruger effect. This phenomenon explains we are not able to recognize how incompetent we are in many things, specially in trading. It is not a question of intelligence or school how to handel this bias, but honestly I do believe the being educated means being able to differentiate between what you know and what you don’t and the ability to say sometimes - I don’t know. Poor performers in the investment business they tend to forecast and stick to that after all facts show he or she was wrong, but they add more and don’t stop arguing with the tape and the market. Their incompetence is blessed with an inappropriate confidence. In the D-K effect we attend to overestimate our skills and intelligence.

It is so easy to judge the idiocy of others, but so hard to judge us. Typically in investment not knowing something (ie. future) drives us into losses, funny enough, but knowing something creates the biggest losses on our portfolio. So don’t try to predict the price of oil, S&P just says - you don’t know. In this case you wouldn’t have any mental commitment to your positions which will help you close the losing positions earlier, before your account crumble like a tissue in the fire.

The BFM Assets Team.