DO YOU REMEMBER? YOU WERE SCARED ABOUT GREECE.

And, what has happened? Absolutely nothing. Nobody cared about the leftist party’s success in Greece. The European markets are gained further on the news of the anti-austerity Syriza won the Sunday elections. Mr. Market ignored totally this event and discounted fully. The funny thing was that the US indices suffered more than the European ones. US stocks ended Monday’s choppy trading session with small gains. Most of the people don’t get it why the Greek election should influence US market more and the Greek result had zero influence on European markets DAX +1,7%, IBEX +1,5.

The global markets were relatively calm and all indices in US closed marginally higher. After falling more than 100 points, the DJIA gained 6 points to 17,678.

• DJIA +0.03% 
• SP500 +0.26% 
• Nasdaq +0.29% 

Technically the S&P500 is still in the range since 21st of January of 2.060 and 2.030. To find a good long set-up you should wait for the breakout of 2.060, if that resistance is taken you can start buying the index.

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The BFM Assets Team.

DOGS OF THE DOW IN 2015

In theory, you should buy the 10 Dogs of the Dow each year and replace them with new Dogs every year. The more than twenty years old investment strategy says you have to buy the worst performing stock in the previous year out of Dow Jones index. Most probably you will beat and overperform the benchmark index itself. These stocks usually tend to beat the market because of the higher dividend and the contrarian approach. This system calculates with the madness of the crowd and tries to behave against that.

Since 2000 in nine years the "Dogs" have beaten the Dow index by an average of about 1%. In 2014, the DJIA delivered 11% total return, while the Dogs are up 12 percent.

The current Dogs for 2015:

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The BFM Assets Team.

HITLER AND THE SWISS FRANC

Super hilarious video. Must see!

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

"...I wish to remain alone with the account manager, the risk manager, the fundamental analyst, and the technical analyst... we were using only 20x leverage and you tell me it's all gone!!"

"I will never trust a central banker again in my life"

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The BFM Assets Team.

VOLATILITY IS A DOUBLE-EDGED SWORD

Thursday everything was about the ECB’s new 60 billion euro new large-scale bond purchasing program and previously the announcement the Dow was falling 71 points and later was jumping 286 points and finally rose 1,5%. The index rallied in four consecutive days. The index’s volatility was extreme again yesterday. So far, the DJIA has seen a trading range of 200 points or more every day in 2015. We have to live with that as a new pattern.

The volatility is a healthy thing for the markets. Some days are lower and for some periods are bigger. Most of the investors are freaked out by the volatility and they usually lose money, they see only the risk of this pattern. The volatile market doesn’t come from the devil. The volatility on the other hand is a great opportunity to make money because the volatility creates more buying options and create great bargain hunting deals.

We are expecting more roller-coaster moves in US indices further in the following weeks, this might be staying with us till the FED starts to increase the interest rate, which could be possibly this spring. All in all, the market is in a very-very bullish momentum, yesterday the S&P 500 closed its highest level in 2015 and the European indices are at their historical records or close to them. So, our advice is to buy the dips with small portion of positions, that is the only working method in this kind of volatile market conditions.

Here is the trading range of Dow yesterday (17.480-17.840)

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The BFM Assets Team.

EUROPE AND US MARKETS ARE IN DIVERGENCE

The US indices gained for third day for true and delivered their longest win streak in 2015, but they are still in negative territory. European indices closed sharply higher Wednesday again. Europe performing much better in 2015 than US markets.

The Stoxx Europe 600 ended 0.6% up and hit seven-year high. Dax closed near its all-time high. France’s CAC 40 and London’s FTSE 100 both gained added 0.9% and 1.6%.

The U.S. stock markets ended Wednesday’s choppy trading day with modest gains, extending its winning streak to three sessions.

• DJIA +0,22%
• SP500 +0,47%
• Nasdaq 0,27%

But in the bigger picture seems the difference in the sentiment and the bullish momentum between the two continents. Take a look at the chart below, it tells more than 1000 words how strongly has been lagging the Dow Jones behind the DAX.

2015 Gauges:

• DAX: +5,19%
• DJIA: -1,51%

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The BFM Assets Team.

WHAT IS THE PIVOTAL POINT?

Yesterday I have received some questions and comments about the yesterday blog http://www.bfmassets.com/2015/01/break-out.html what is it exactly the pivotal point and how to use that pattern.

Good question since this is a key tool for trading and almost unknown by the traders, but frankly without this is hard trade the falling markets. The funny thing is its unpopularity between traders, while that pivotal point theory is more than 90 years old and invented by Jesse Livermore by the greatest investor ever. http://en.wikipedia.org/wiki/Jesse_Lauriston_Livermore He wrote about the pivotal point in his book of "How to trade in stocks", 1940, http://www.r-5.org/files/books/trading/speculation/Jesse_Livermore-How_To_Trade_In_Stocks_%281940_original%29-EN.pdf

To understand it, it is practical and easier if I take some current examples. Recently the stock markets are in bullish and long trend, but there are many periods were we experienced some severe corrections like in last October the S&P 500 dropped closely 10% and in the last 10 days the index fell roughly 4%. In these tumbling periods we never know where the lowest point is, but with the pivotal point strategy we could indicate the first point when we have to start to buy the dips. The plain „buy the dip” strategy is too risky and not objective at all, we have to wait for the clear break out signs. Livermore stated if you are greedy and open positions too early without any pivotal point you will lose and burn out shortly, but if you have patience and wait for the pivotal point you are going to survive.

Here are two examples from the last couple of weeks:

• Between 20th September and 17th October 2014 was a huge correction in the DAX. We were just watching and waiting for the pivotal point, for the first break-out. We didn’t want to catch the falling knife. We first started to buy on 17th of October at the second red arrow because that top closed above the previous top – which is a pivotal point. The price clearly closed above the previous top. 
• Recently – precisely today we have another pivotal point in DAX. The yesterday closing price did draw a pivotal point at 9.820 because it has closed above the previous top.

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The BFM Assets Team.

BREAK OUT?

Another V shaped recovery after the five days free fall? We will see, for sure we have experienced a nice rebound on Wednesday in all markets, and the S&P 500 recorded its first gain in 2015 and snapping a five-day losing streak. The headwind of the falling oil is moderated yesterday and the sentiment turned into more positive between the investors.

• S&P 500 +1.16%
• DJIA +1.23%
• Nasdaq +1.26%

This is not yet a break-out or pivotal point for S&P500. Its resistance key level is at 2.047, 7 points far from the recent point. So at this index we still have to wait for more technical confirmation, it is still too early to start to buy here.

But some European indices and the Australian index show clear pivotal points, so we should start to buy today FTSE, ASX200 and CAC40. Namely the FTSE has closed above its pivotal point at 6.400 and delivered a break-out pattern, so it is a perfect set-up point to buy the dip.

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The BFM Assets Team.

5 WHOLE DAYS? OMG THE WORLD IS COMING TO AN END

Not really, this is not a perfect storm or end of the world. Of course everybody expected some nicer year start for stocks, but the S&P 500 has dropped for five straight sessions. U.S. indexes have had their worst start to a year since the financial crisis year of 2008. U.S. stocks fell on Tuesday further and S&P 500 was marking its longest losing streak in more than a year. The S&P 500 is off more than 4% from its peak reached on Dec 29, 2014. That was the fifth-straight decline for the index, the most consecutive losses since December 2013.

The last 5 days data:

• Dow - 3.40% 
• Nasdaq - 3.86% 
• S&P 500 -3.72% 

Yesterday was another day of lows: stocks, oil, euro dollar, and low bond yields. German bund yields fell 15 percent to 0.44%. Investors are rotating into more defensive assets. There is a risk-off mood and appetite for fixed income assets because of the anxiety of investors.

Technically the Dow Jones index is in a falling knife mood and we have to be cautious and wait for bounce back and clear sign of break out or pivotal point. Below the 17.750 key resistance level we have to wait and do nothing. Without this break out it is only a guessing to open any new position since the market easily could fall further down.

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The BFM Assets Team.

JANUARY EFFECT

This barometer tells you that if stocks are up this month, then the rest of the year should be good for stocks. It’s a rule of thumb that has proved remarkably accurate since 1945. If the market was up in January, 84% of the time it continued rallying through the end of the year. Since 1979, the average gain in the S&P 500 for January has been 1.14%.

But this year seems special. Against the conventional definition that the first days of the year are more often positive, yesterday US markets suffered its largest loss in 3 months. This is not the start to 2015 that investors were hoping for. Three factors drove the free fall the strong dollar, low oil price and the huge volatility. Oil plunged below $50 for the first time since April 2009 and the dollar rose as the euro traded below 1.20.

• SP500 -1.81%
• Dow -1.86%
• Nasdaq -1.56%

The losses were truly breathtaking. The S&P 500 is down 3.4 percent over the past five sessions, the longest losing streak in 13 months. It is negative for the Santa Claus rally period for the first time since 2007.

What is going to happen now? We have to be more cautious, these types of anxiety don’t go away overnight. We'll have to see. The big question is do you buy dips or not yet?

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The BFM Assets Team.

I HAVE NO IDEA YET WHICH DIRECTION THE MARKETS WILL TAKE IN 2015,

since I don’t have a crystal ball or holy grail. Therefore, I don’t like to forecast from the first two days on the year. I have read many forecasts so far by gurus and analysts about their expectations in 2015, but they are merely hopes not facts, I guess those are pretty early to say anything about the current year. We don’t see anything yet. After couple of weeks we could maybe see some trends for this year, but forecasting is always is so hard and almost impossible task.

US indices, the three main ones closed Friday flat and went on to erase the bulk of their losses in the last half-hour of trading Friday, but ended down for the holiday-shortened week and snapped two-week winning streaks. Trading was relatively light on Friday traders had hangovers and woke up late.

• SP500 -0.03%
• DJIA +0.06%
• Nasdaq -0.2%

The final 2014 results:

• SP500 +11.4%
• DJIA +7.5%
• Nasdaq +13.4%

In technical terms the Dow Jones had been tumbling last week and the index’s first resistance level is at 17.960. Firstly, it needs to close over this level to get back again to the bullish momentum.

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The BFM Assets Team.

DON’T FORECAST, JUST FLIP THE COIN

Why? Because we are unable to forecast the markets as a human being. So the best predictor is right in your pocket. When we try to figure it out what the future holds, our statistics are worse than 50% so why we are not counting on the coins if it has 50% efficiency.

The typical retail investor is always underperforming the markets and indices while they think they are better and smarter, but that is not true. This chart below explains this phenomenon clearly.

Yes, true there are other several reasons why retail investors are losing, but the biggest factor that they are doing fundamental analysis or technical forecasts with colourful indicators. Honestly they don’t need to do that, just flip the coin. So, you have to give up the search and study and use this super easy blindfolded trick to buy or sell something. Statistically proven there is not any technical indicator which hit rate is better than 50% but the traders still use them, personally I don’t get it.

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

The BFM Assets Team.