“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.