HOW WAS 2014 FOR HOUSEWIVES?

One of the funniest parts of analysis in stock markets: if you look back couple of months or a year how people forecasted the future. I have loved during the whole year the bearish sentiment about the market rally. But finally the 2014 has been quite a good year again for investors in stock markets in row for 5 years.

2014 Index returns:

• S&P 500 +12,55%
• Dow Jones 8,48%
• Nasdaq +14,39%

It has been proved again the best investment is still the stock markets and you had should forget the gold and property in 2014. So, at the beginning of 2014 there was a survey what pops & moms are thinking about the best investment in 2014. This year they had good shots since last year 2013 was an exceptional good year for stocks so the mean used to be very optimistic about stocks this year generally and they were right. They didn’t trust in commodities and gold and they were right again, the whole commodity asset group suffered its biggest drop since decades. But it seems clearly after three years of falling of gold the love has gone away.

They were super sceptical about bond market, but this asset group performed quite well. All in all if this kind of choppy and volatile market they really put the bets on stocks they made nice returns, but I am concerned a bit that they really did since we had two big corrections in US indices closely 10% in 2014, and those days and pops & moms usually capitulate.

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The BFM Assets Team.

6 RULES I LEARNED FROM SEAL SOLDIERS AS A TRADER

The military is far from trading, but I have found some similarities between SEAL (Special Operation Forces Sea, Air and Land) and investment: the preparation, the professionalism, the special skills and the commitment. The soldiers have many great habits which we should consider as investors being more efficient and profitable.

During the trainings of SEAL they get new habits and lose the wrong and useless ones. They are trained for the mission as we are as investors on our horizon there is only one goal at the end of the day– the profit. They learn from their mistakes day by day and the purpose is to get good habits and stick to them.

1. Be loyal. Team loyalty in SEAL, but in trading means you should be loyal to your system. Don’t change that often. Never let your emotions rule your trading. Follow your rules around the clock. 
2. Be reflective. Analyze yourself and your trading history and reflecting on your mistakes and learn from them. Ensures you never repeat them. 
3. Be obsessively organized. Sleep, do exercises and make your whole day organized. The best traders are very well organized and work hard. 
4. Assume you don't know enough. Because you don't. Any effective trader understands that training and learning is never complete. Being an investor is a long life learning process which never stops. 
5. Be detail-oriented. Take all your attention at the small informations and news and analyse them. Be well informed and read as much as you can to get more information to make better decisions. 
6. Never get comfortable. The trading arena and the floor is not that place where you are going to have comfort feeling. It is a battlefield and you should push yourself outside of your comfort zone.

This list is the beauty of trading and proves why is one of the most fascinating and inspirational job in the world. Maintain these habits, and encourage yourself to follow them.

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The BFM Assets Team.

EXPERTS’ CRYSTAL BALLS ARE CLOUDY

Most of them forecasted a big fall, but finally Mr. Market has delivered a nice rally in December. Experts stated during the month that the market will crash, new correction will happen, but they are wrong. They convinced many investors with this negative sentiment staying without positions, so they lost again an opportunity to invest in this rising market.

Around Xmas days there were no volume, but the markets are gained further nicely. We saw new highs in the major indices S&P 500, DJIA, Nasdaq, Russell 2000. This is a very strong confirmation of the bull market is alive and well for all those doubters. Nasdaq closed at highest level since March 2000. The Dow index has gained for seven consecutive trading days, and enjoyed its biggest seven-day point gain since 2008. The Nasdaq has been up for eight of the last ten weeks, while the S&P 500 has gained for nine of the past ten weeks. This is a typical end of year rally.

In technical terms the Dow made a clear breakout last week at 17.960 and stayed in the untouched territory, so any forecast without indication of resistance levels is just guessing. What we are expecting is the index is going strengthen further in the following 5-10 days.

Start your investment here with us: http://www.bfmassets.com/managed-accounts

The BFM Assets Team.

GETTING CLOSER TO SANTA RALLY?

One of the most famous market phenomenon is the Santa Claus Rally at the end of the year. Obviously we don’t know this year will come or not since we don’t have a crystal ball, but we can find some data from the past to understand better this phenomenon. Namely this pattern means the last trading 5 days of the year and the first 2 days of the new one. Typically the markets are trending in those days, and mostly they are bullish.

According to the Trader’s Almanachs since 1969 the Santa Claus Rally occurred 34 times out of 44 years. So the winning ratio is pretty good, it is over 72%. The average cumulative return is around 1.6%, but there is always one day at least of decline. If we look back in longer period since 1896 the Dow Jones gained in 77% of the years with around 1.7%.

What is the underlying lift-power of Santa Claus Rally? To be honest I don’t have a faintest idea, my bet is more mass psychology than fundamentals, might be the year-end tax-related portfolio adjustments or optimism during the holiday season.

The BFM Assets Team.

IT IS TOUGH BEING SHORT IN THIS BULL MARKET

The U.S. stock market ended a great turbulent week punctuated with collapse of the Ruble, gyrations in the oil prices and the Federal Reserve’s policy meeting and most importantly with the biggest weekly gain since October 2014.

Once again Mr. Market proved that nobody knows anything. Nobody expected this low oil price early on and nobody expected the last week volatile rally. Most of the investors anticipated quiet pre Xmas weeks. On the contrary the S&P 500 had its biggest gain since 2009 and gained during the week with more than 3.4%, Dow gained +3%. Who shorted the market, he burned out for sure. Being on the sell side it has not been only hard mentally, but might be a super loser deal either.

Friday performances:

• S&P 500 +0.46%
• DJIA +0.15%
• Nasdaq +0.36%

The S&P hit the 2.075 previous record level last Friday, which is a great sign of the bullish sentiment, without any doubt we are expecting more gains on the index and it is going to get higher in the untouched territory over 2.100 shortly.

The BFM Assets Team.

MONSTER RALLY WITH EXTRAORDINARY BULLISH SENTIMENT

The rally has arrived as we forecasted beginning of this week. We have had many new records this week. Yes, this week will be in the books of trading history. The market not only rallied in crazy way with around 5%, but scored the best 2 days gain since 2002. I see the comments that traders are blaming for this fast rally the FED and new Cuba policy. This sounds like some kind of a conspiracy. Whatever they say, the point is that at the strongest bull market rallies you don’t really know what the main force behind the gains is.

The Dow delivered its biggest one day gain since 2011 and got back really close again to shouting distance of 18.000. First time happened since 2008 the DJIA recorded 200 points daily gain. The S&P 500 delivered its biggest one-day gain since 2012. And first time since 2002 the S&P500 posted two consecutive days of gains bigger than 2%.

Yesterday:

• DJIA +2.43%
• S&P500 +2.40%
• Nasdaq +2.24%

The other stock markets are also massively in green territory:

• DAX +3%
• ASX 200 +2.9%
• Nikkei +2.4%

Technically the Dow Jones deleted the 10 days drop in December within 4 days and recovered back to the record territory and erased all resistance levels. Recently the index needs to retest the 17.960 level and then after a few days consolidation the bullish sentiment is going lift higher the index into the untouched territory.

The BFM Assets Team.

BREAK-OUT?

Might be – I would say a small yes now, but tomorrow could be a big yes. In our interpretation the FTSE index delivered a break-out and pivotal point break-out last night, which usually means rebounce from the seven days free falling streak.

And the chart technically also developed a double bottom pattern which also supporting the bullish rally and sentiment in the following days. From the daily lowest point of 6.175 the UK benchmark index probably will retest the 6.415 key resistance level shortly.

After the great plunge which was closely 10% in December, the FTSE index might come back to a consolidation and gaining period and in 2-3 weeks the chart could go back to the previous prices territory around 6.750.

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The BFM Assets Team.

25 YEARS OLD BULL

Yes, the famous one, this:

The Charging Bull also known as the Wall Street Bull bronze sculpture was installed without permission in front of the New York Stock Exchange in December 1989. This month the bull is 25 years old. Arturo Di Modica spent his own money US$360,000 of this bull.

The sculpture is both a popular tourist destination which draws thousands of people a day, as well as one of the most iconic images of New York and a Wall Street icon symbolizing Wall Street and the Financial District. This piece is not only the symbol of Wall Street but the symbol of financial optimism and prosperity as well.

The sculpture was the artist's idea, not the city's one. In an act of "guerrilla art", he trucked it to Lower Manhattan and on December 15, 1989, installed it beneath a 60-foot Christmas tree in the middle of Broad Street in front of the New York Stock Exchange as a Christmas gift to the people of New York. That day, crowds came to look at the bull, with hundreds stopping to admire and analyze the gift as Di Modica handed out copies of a flier about his artwork.

It was 10 nights before Christmas, and all the way down Wall Street the coast was clear. A truck turned the corner and lurched to a stop directly in front of the New York Stock Exchange. Arturo Di Modica and his small band of co-conspirators jumped out of the truck and got right to work — the night watchman had just completed his patrol of 11 Wall St., and, having cased the block for several nights. They lowered the bronze beast — all 3 ½ tons of it — right into the middle of Broad Street, and right under the exchange’s Christmas tree. The truck zoomed out of sight, but Di Modica stood at the corner, watching and waiting for morning.

“It was love right away,” Di Modica, now 73, told “They wanted to touch it, embrace it — it was beautiful. I stood there watching until about noon, when I took a break and went to lunch.”

Whenever the market is down, people stop him in the street and ask, “Why isn’t the bull working?” he reported. “I tell them he’s resting, he’s tired, but he’ll get back to it soon.” But every couple of week he pays a visit to his most famous creation, watching the tourists pose with it the way they first did 25 years before.

The BFM Assets Team.

MARC FABER AND STOCK MARKET CRASH

Marc Faber he has been forecasting since the Carter-era a new crash of markets and crisis. That is pity after decades of falls forecasting many investors out there still listen to him and tend to believe him when he opens his mouth and forecast and another end of the world day. Like N. Roubini the other doomsayer who is always concerned about the market’s performance and he has anxiety about the bull market. He shorted this strongest bullish rally till 2013 and he lost huge amount of money. In contrary, all fact proves that in the last decade the stock markets were the best investments in US comparing to any other assets.

Just for fun I collected below some great predictions of Marc Faber from the last couple of years. During this period the S&P500 gained closely 150%. Funny isn’t that:

• 'The Bear Market Is Starting' Marc Faber –CNBC, August 3, 2011
• Faber: The Dollar's Value In The Future Will Be Zero –Business Insider, 4/18/ 2011
• Marc Faber: We Could Experience A 1987-Style Crash This Year –Business Insider, 5/10/2012
• Marc Faber: Look out! A 1987-style crash is coming. –CNBC, August 8, 2013
• 2014 crash will be worse than 1987's: Marc Faber –CNBC, April 10, 2014

And I am sure he is going to continue his crash predictions.

The BFM Assets Team.

DEAD CAT REBOUNCED

This week is not the best one for the markets after three days of falling Thursday was the first winning day without any impressive jump, the market only delivered a “Dead Cat Rebounce” pattern, so might come another negative day today. Not only US markets are suffering by losses, but European indices are also in negative territory in weekly basis.

This Dad Cat pattern usually means that one modest green day after couple of following days would mean further losses. That is another warning sign that from the intraday record in the middle of session the indices almost turned into falling mood at closed at daily lowest points.

Yesterday data:

• DJIA +0.36%
• S&P 500 + 0.45%
• Nasdaq +0.52%

So, we moved to our bunker and reduced massively in the last couple of days our exposure on long side of indices and waiting for some bullish break out confirmation. Namely 17.550 is the resistance level of DJIA below that key level we are on hold and waiting to jump in again.

The BFM Assets Team.

IS THERE ANY CORRELATION BETWEEN WALL-STREET AND MAIN STREET?

I am not sure about that. But my longer answer is the following, sometimes yes, sometimes not. Many folks, especially the fundamental investors out there are the real believer of the macro numbers determines the direction of the markets. Normally I don’t like the easy and cheap answers. If that would work in trading that could be the easiest job in the world, just take a look at the GDP chart of US and if it is positive territory buy the S&P and vice-versa.

I could bring hundreds of examples when the macro numbers were horrible and the market did nice returns – juts take a look of the performance of Venezuelan, Spanish and Greek stock markets in 2013.

Or here is a great chart by Alliance Bernstein, which proves clearly the macro parameters don’t give any determination to stock market’s performance. This chart is more than interesting and help us to understand the underlying the psychology of the mass and the investors.

In the last two decades the Chinese economy boosted by 15% and during the same period the stock market has basically gone nowhere. And, on the contrary the Mexican GDP is closely flat, but the stock markets performed much better.

The BFM Assets Team.

THE GAME CHANGER OF INDEX TRADING – JOHN BOGLE

He is an authentic and real game changer for trading, especially for retail clients. He is fully convinced that investing into indexes is much better investment strategy than invest into stocks. Last time when he bought stocks was at his college years since that time he has been only owning US indices, especially S&P 500.

He changed the investment industry with his Vanguard company. Nearly 40 years passed since he introduced his low-cost index fund Vanguard 500. At those days many folks thought that Bogle is crazy, but now his fund is the second biggest one in US and investing more than 1.7 trillion $ in US based indices. He founded that the best tradings are boring and most of the cases you don’t have to do anything just sit and watch the market. He invented the passively managed broad based index following strategy. The idea was behind the index trading:

• It is cheaper than actively managed funds
• Charge only 0.2% fee yearly
• Lower volatility
• It is small investor friendly – low costs
• Trading stocks is too risky - Doing the wrong thing(bad stock) at the wrong time(bad timing) is killing you.

He is only focuses on US markets and doesn’t care about other regions in the world, because the world market’s capitalization’s 52% is still in US. Today after 5 years of bullish market his fund is still bullish because he thinks you have to invest for long term and what seems today pricey in one year would seem cheap.

The BFM Assets Team.

SANTA’S CORRECTION?

Yes, for yesterday for sure. For tomorrow? I don’t think so. Friday the Dow was flirting with hitting the psychological benchmark of 18,000, but yesterday US stock market suffered its biggest daily drop in the last seven weeks. There were some underlying bearish effects like oil’s price slide, dragged down the oil companies and other uncertainties and bad economic reports from China(disappointing trade numbers), Japan (GDP has contracted again) and Europe(German industrial production smaller than expected). Losses led by energy sector stocks. The changing of sentiment was shown in the VIX index, which rose by 20% on Monday.

• SP500 -0.73%
• DJIA – 0.59%
• Nasdaq -0.84%

All in all this less than 1% drop is nothing, we are still confident about more gains in December and some Santa Claus rally. There is some pressure on prices after the 7 weeks rally and prices are in untouched record territories, but after couple of days consolidation might come again more gains. In terms of technical analysis we only open new long positions if the resistance level at 17.960 would be taken on DJIA.

The BFM Assets Team.

THE V-SHAPE PATTERN

The markets run in cycles, some days up and some days down this is usual and part of this business. Some days the drops and recoveries are faster than normal and this happened in the last two months. US markets shaped V-shape recovery in October and November. The index returned within two weeks to its previous high as quickly as it dropped. There was no any retest before the real bounce. The strength of this V-shape recovery was a bit surprise, normally comes corrections in each 2-3months but the recent one was really fast and rapid.

The depth of the selloff was closely 10% in SP500 and took 3 weeks the recovery was only for 2 weeks.

How long and far will do this recovery? Obviously nobody knows for sure. An average V-shape recovery lasts between 41 and 58 days so in the worst case scenario the bulls stays with us till middle of December since we are now at 34 days.

The price goes further than the previous top between 4.1% and 7.1%. So there is still place for more gains 1%-4%, the target might be this area 2100-2150.

The BFM Assets Team.

DRAGHI OPENED HIS MOUTH...

and the European markets dropped sharply yesterday. The investors are concerned about that the ECB would soften its broad-based package of quantitative easing in January 2015. The ECB President Mario Draghi had poured cold water on hopes the ECB would begin a program of sovereign-debt purchases called QE. The Central Bank held interest rates at a record low. The red arrow shows the reaction on Super Mario’s speech on CAC40.

And you can find the same template on DAX as well:

All Europeans suffered quite sever drop and just have recovered slowly. The US indices finished a modest day, after the intraday records they had turned into red territory.

• SP500 -0.12%
• DJIA -0.07%

Most of the investors are waiting for today’s monthly job report so we are expecting some big moves later today. The outlook is good for SP500, the index still holds steadily the resistance level at 2.073, so after 7 consolidation days might come a bigger rally today and Monday.

The BFM Assets Team.

SANTA CLAUS IS COMING TO FLOOR

Will bring Santa gift to the investors, and does again the Santa Claus Rally? So far, he has done, but there is strong chance to deliver more gains in US stock markets. December is typically investor friendly month. This month is the second most profitable one historically so the chance for more gains is really high. According to the Bespoke Investment’s statistics, in the last 50 years the Dow Jones gained on average 1.6% in December, posting gains 70% of the time.

By now, the S&P 500 has posted its sixth winning streak week. And, another indices like Nasdaq and DJIA rallied nicely as well in November and December so far. Officially the Santa Claus rally means the last 5 trading days of December and first two days of the New Year. The statistics are impressive, since 2009 the S&P 500 delivered within seven days positive return. Santa Claus Rally gains average 1.5% over the seven-day period, according to history of the markets.

We do believe the Santa Claus rally is already underway and the outlooks are really promising for more gains in US and European indices.

The BFM Assets Team.

THE MOST POPULAR STOCK IS THE MOST PROFITABLE?

I don’t think so; honestly my one decade experience says the opposite of that. The most popular means most traded and most loved and owned by small investors, pops and moms and housewives.

The list of 20 most-traded U.S.-listed stocks was put together at the Journal’s request by AJO, an investment firm in Philadelphia, and is based on trading volume of 2014. This list it proves again that the most loved stocks by the mass they are far not the best investments. It seems to me this is an evergreen rule of the market, but most of the investors still love to buy those stocks which are recommended by CNBC or by family member or colleagues.

Out of 20 stocks 14 have declined, even as the broader stock market has rallied and 12 out of 20 most-traded stocks of the year are all down by double digits in percentage terms.

Here is the list of 14 losers and their 2014 performance:

1. Splunk down 2% 
2. Netflix down 6% 

They are in double digit loss:

1. First Solar (the solar-energy firm), down 11%; 
2. Lululemon Athletica, 18%; 
3. GameStop, 23%; 
4. Stratasys (one of the 3D printing firms), 24%; 
5. Pandora Media, 26%; 
6. Twitter, 34%; 
7. Groupon, 36%; 
8. Herbalife, 45%; 
9. Peabody Energy (the coal producer), 48%; 
10. SINA, a Chinese Internet firm, 55%; 
11. 3D Systems (the other 3D printing firm), 62%; 
12. Nu Skin Enterprises, down 70% this year. 

Here is the list of 6 winners and their 2014 performance:

1. American Airlines Group
2. Micron Tech. up 65%
3. Tesla up 63%
4. Facebook up 42%
5. Yahoo 28%
6. Salix Pharm., up 14%

The BFM Assets Team.

10 BAD HABITS OF LOSERS

Being precisely, these are the10 rules of unprofitable traders. If you do the opposite what they do, you are in a good way to be profitable. This list is subjective, but worthwhile to bear in mind, this is a good list for rookies and newbies to learn from their mistakes.

1. Overpositioned and use high leverage. 
2. They are typically overtrading. Open and close to often positions. 
3. They ignore the trend and want to be on the both side of the market, always wanting to catch up the tops and bottoms. 
4. Cut the profit, and let the loss run and hoping for it bounces back. 
5. They buy high and sell low, do totally the opposite of the golden rule.
6. They want to be right and always want to predict. They think trading is about being right. 
7. They are listening to others – CNBC, anchors, gurus, friends…etc. 
8. They buy because they think something is cheap. 
9. They think trading is a fast way of being rich. 
10. They concerned about the profit but don’t concern about the loss.

The BFM Assets Team.

THE SHOW MUST GO ON

The green days, weeks and month continued, US indices finished the holiday shortened week and November in green again. During last week the Dow Jones rose to another record and in November closed its second month of gains and its best performing month of the year. The index has ended the month without having lost ground since 15th October. The Dow Jones has held onto their 6th straight week of gains, this the longest winning streak in 2014. The DJIA and S&P posted their second straight month of gains. 8 out 11 months they gained which is prove of bull market. The Nasdaq closed up 1.7% on the week and posted its six week winning streak since February 2013 and also posted a second month of gains also. The Tech Index gained only 7 out of 11 months.

DJIA rose 2.5% in November, finished its 31 record and showed the strength of the bullish momentum. What about the coming December? Historically it is the best month in the history of DJIA for more than a century and the performance can boost further.

Technically all three US benchmark indices are in uncovered territory at historical record levels. The DJIA has been consolidating at the area of 17.750-17.900 in the last week, so to be more bullish we have to see some breakouts from 17.900’s level.

The BFM Assets Team.