MY CRYSTAL BALL IS SAYING: “BE LONG ON NASDAQ AND RUSSELL”

After a volatile day Thursday DJIA closed modestly higher, the other US indices plunged. It was again an ugly day for the Nasdaq for small cap index Russell2000 and for the S&P500. During the US trading session the DJIA reached its intraday high at 16.622. It is a new record high close from April 30 is 16,580. At session highs, the DJIA jumped 100 points and topped its previous record to close levels. The DJIA managed to stay in positive territory by the end of the day too.

• S&P500 — down -0.1%, to 1,875
• DJIA — up +0.2%, to 16,550
• Nasdaq— down -0.4%, to 4,051
• Russell 2000 — down -1%, to 1,097

Previous records:

Closings:

• DJIA: 16,580 (4/30/14)
• SPX: 1,890 (4/2/14)
• COMP: 4,357 (3/5/14) (14-yr high)

Intraday highs:

• DJIA: 16,631 (4/4/14)
• SPX: 1,897 (4/4/14)
• COMP: 4,371 (3/6/14) (14-yr high)

The Russell 2000 was at -1.00%. The index of small stocks closed 11 points, 1%, lower at 1,097. It has been made already -10% correction so far YTD, which is a good level to buy the dip opportunities. The weakness in Nasdaq and Russell2000 have come to an end. It is a good opportunity not buying longer the high priced big, or middle cap stocks, but buying the cheap Nasdaq and small cap companies.

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The BFM Assets Team.

THE SMALL INVESTORS ARE MOSTLY BEARISH

That means in contrarian interpretation the market will make a rally in the following couple of weeks. Why? Because most of the investors, I mean housewives are buying the highs and selling the lows. They are always buying the optimism and selling the pessimism. Now we are in the middle of pessimism, which means the market is bargain and we have to own it.

The sentiment is a great indicator, but the point is that we have interpretat adverse. If most of investors are bullish we have to sell or being flat and if the vast majority of retail clients are bearish we have to buy the market.

Yesterday the Marketwatch issued by Hulbert Investment this chart below. Regarding the Nasdaq’s sentiment. That is obvious that the dominant sentiment now is bearish and since beginning of 2013 is at its lowest point. That means the bulls are at the lowest amount recently amongst them. If you look at retrospective back the strongest rallies occured always after the big sentiment low points. The wall of worry is stronger now than in the last 15 months and the investors are mostly in risk off mood.

• July 2013
• September 2013
• February 2014
• May 2014???

This interpretation is good for short or middle term trading. Obviously can’t predict the market for years, but if we are okay with few months we could use this as a contrarian indicator pretty effectively.

The BFM Assets Team.

TUESDAY SELL OFF

First atypical day, yesterday didn’t work the Tuesday magical rally effect. Tuesdays on YTD have been the strongest part of the week so far, but not anymore. US stocks ended reasonable lower and the financial and consumer-discretionary sectors were leading the decline. The volume was very little and indices closed closely at daily lows.

S&P500 — down 16.94, -0.9%, to 1.867. The index has been losing its ground in three of the last four sessions. The index is down -1.2% from the record close of 1.890.90 2nd of April.

DJIA — down 129.53, -0.8%, at 16.401. The big cap index also fell for three out of the last four days and is off -1.1% from the record high on 30th April. Only two stocks out of 30 were able to stay in positive territory.

Technically we start to buy again the SP500 if the price would be able to close above again the 1.885 key resistance level, so maybe we have to be patience for couple of days. This is the time of just watching and waiting; waiting for some good bargain opportunities and then react.

The BFM Assets Team.

STOCKS HAVE BEEN STUCK NEAR FLATLINE

Continues further the range trading with huge volatility on the positive territory that is a typical pattern of pre-breakout period. Monday all three US markets closed higher and excluding Nasdaq they are staying around their tops which shows they are strong and want to hit new high pretty shortly. Right after the opening yesterday the Dow turned into a three digit loss first and then gained again. This volatility kills most of trader’s nerve. The only way to handle this stress is to reduce the position size.

• S&P 500 +0.2%
• Dow +0.1%
• Nasdaq +0.3%

So far the picture looks good while the investors always buy the dips and pull up the markets. The markets are in big range, but they are not able to drop significantly. There is not any bad news from Ukraine which could push lower Mr. Market.

The best approach if we don’t blame the market for volatility, for the yo-yo pattern just to buy the dips and corrections, but to be able to do this, we need to have patience and good nerves. But all in all those are the two best friends of good traders always.

The yesterday’s moves of Dow, crazy, right?

The BFM Assets Team.

ALREADY BAKED IN THE CAKE

I mean the Friday good job report data, the impressive number of 288,000 jobs in April. That is the biggest increase in more than two years and highly above the expectations of 215.000.

The unemployment rate is the lowest since September 2008 is 6.3%. The stronger-than-expected report lifted first US indices, but the rally proved to be short-lived and finally made slight losses on Friday trading session.

Friday:

• Dow 16,513 -46 -0.28% 
• Nasdaq 4,124 -3 -0.08% 
• S&P 500 1,881 -3 -0.14% 

Weekly gains:

• SP500 +1%
• DJIA 0.9%
• Nasdaq 1.2%

The DJIA seems very bullish and made on Friday its highest intraday level ever again, at 16.631.

So the US indices don’t struggle at all, they are really fine; the crash is absolutely not imminent. The Dow was able to set a record closing high Wednesday, but on Friday went down around 0.4% from its record closing level of 16.580. However, all in all the week was really good and shows that the index is in pretty nice bullish momentum.

So fascinating bullish uptrend pattern on the weekly chart of DJIA:

The BFM Assets Team.

SOME BUBBLES FROM THE LAST DECADES

We love George Soros’s quote about why we surprised when burst the bubbles. He said once “The only surprise is that we are always surprised.”

Frankly in each last four decades we have had some kind of bubbles. We have seen few bubbles during those periods. 

• 70’s: there was GOLD bubble price gained from 35USD up to 850USD.
• 80’s: Nikkei went up from 8000 to over 40000, before crashing with 80%.
• 90’s: Nasdaq dotcom bubble index went up from 440 to 5000 – 80% loss finally
• 2000’s: Housing bubble in US, Dubai, Spain, Iceland. Gained 200-500% the prices

The US stock market crashes happened in 1987, 1998, 2000, 2008. The difference between them each time was that these bubbles driven by different stocks, industries. What is the common thing? It is us, the investors, the human beings with our all irrationality, inconsistency and in some case incompetence. Look at the chart below how big is the correlation between three crisis 1929, 2000, 2007. That is shocking how same we act as a herd.

There is no doubt. Bubbles happen again and again thanks to our common greediness. Plus there need 4 other things occur bubbles: 

• Strong fundamentals behind the market
• Optimism about the new age
• Huge liquidity of cash
• People start to think this time is different

We are recreating in each decade a new bubble because we love the hypes. The only problem is that. Most of us don’t make money in bubbles but make a brutal loss. We have to learn how to avoid those losses.

The BFM Assets Team.

WHERE ARE THE SELLERS? THEY ARE BUSY WITH COVERING...

The bull market is unabated, it is hilarious. As we anticipated the DJIA hit new high again closed at a record level after rising 46 points to 16,581. The big cap index gained 0.8% in April. The DJIA surpassed the highest closing level, reached on Dec 31, 2013.

DJIA performed in April:
Dow +0.8%

And on YTD 2014:
Dow +0.03%

Yesterday the index reached the 16,592 level that is the highest intraday level ever. So if I were a short runner I would be so busy and nervous how to cover my losses. It wouldn’t be surprise to me if during the 1st of May European closure DJIA would make a great rally, many times happen this pattern when Europe is closed for holidays US markets make nice gain. Let’s see today what’s going to happen.

The SP500 continues the ranging around the top. That range in the last more than one week hanging around the 1.880 area. In bigger perspective since February the index in a wider range of 1.840-1.880, but we are expecting some kind of break out within few days either on SP500, if the index could climb and close above the 1.890 key resistance level. The buying momentum seems pretty strong on both indices.

SP500 performed in April:
SP 500 +0.6%

And on YTD 2014:
S&P 500 +1.9%

The BFM Assets Team.