WHERE IS THE CHEAP OIL?

I don’t know, but it has gone with the wind. This year analysts and anchors always found something why the oil jumped higher and higher again. First, was the severe winter conditions in US then the Russian invasion of Ukraina and now the summer and the holiday season. Maybe they are right, maybe not in terms of fundamental, but the funny thing is the weather and Putin should be a great technical analyst because they always react at key support and resistance levels in the oil chart.

The oil has a PhD in economics and recently seems the recession is over all macro numbers are getting better quarter by quarter in the world economy. That means upside power and more upside potential for the oil in middle term. On the weekend, China reported trade surplus and Japan’s GDP beat the expectations, which indicates both economies are in good condition.

First time since last August the WTI Oil futures climbed above $104,50 a barrel yesterday. The market shows very strong bullish sentiment. Monday the price jumped up from $102,70 to $104,50. Gained 1,7% within a day on the NYMEX the WTI Crude Oil. In terms of dollar gains were the largest in about two months.

In terms of technical aspects the WTI Oil is in a triangle recently, and pretty close to the break out. If it would be taken within few days the next resistance level is at $114, so there is another $10 gap on the long side.

The BFM Assets Team.

GREENLAND – NOT REDLAND

Not red at all. All indices closed the week in green and closed at their weekly highs. Rallied the whole last week the US markets and gained further to their record territories. After, that massively strong week the Russell turned also in positive territory in YTD.

• Dow 16,924 +88, +0.52% 
• Nasdaq 4,321 +25, +0.58% 
• S&P 500 1,949 +9, +0.44% 
• Russell 2000 1,165 +0.98%

I love to see in the trading forums most of the guys out there are still expecting the big correction and try to catch the short side. The S&P made its 18th record close of this year and its third straight record finish. So these sell runners don’t understand the market at all. This is a brutal bullish market who is the idiot who sells this momentum. Just look at the chart and open your eyes and just buy, as the legendary Livermore said “Never argue with the tape.”

The Russell2000 made 2,7% weekly gain and recovered faster than the other US benchmark indices. Why? Because as we forecasted couple of weeks earlier, the index was pretty undersold and undervalued so was a great bargain hunting opportunity some weeks ago. The worries by now have gone regarding Russell2000. Just remember a while ago most analysts were complaining about the Russell and now it is the best performer US index. The old rule works again, the analysts were wrong and the market was right. That is an old boring statement, but still more than true.

We started to buy the Russell at level of 1,100 and now the small cap index is at 1,165. Our next target is at 1,190 as a key resistance level.

The BFM Assets Team.

AAII SENTIMENT

Yesterday it was issued again the weekly AAII investor sentiment survey. Let’s take a look at the retail investors, are more bulls or bears?

• Bullish: 39.5%, up 3.0 points
• Neutral: 38.3%, down 2.1 points
• Bearish: 22.2%, down 1.0 points

The optimism among American individual investors is above its historical average for the first time in 12 weeks. Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.0 percentage points to 39.5% since last week. That is a significant gaining and the first time optimism is above its historical average of 39.0% since March 13, 2014. In May the bullish attitude gained a lot from the 28% level.

The neutral sentiment, expectations that stock prices will stay essentially unchanged neutral sentiment remains above its historical average of 30.5% for the 22nd consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.0 percentage points to 22.2%.

The spread between bullish and bearish sentiment (the “bull-bear spread”) widened to 17.3 percentage points. This is the largest bull-bear spread since February 27, 2014.

In May when the pessimism was at the highest level the market made a great rally. All in all, now the investors are more optimistic about the future so we need to more pessimistic at the same time. It always concerns me if there is a consensus in one way direction because those days come the surprise and pain. So my advice is to buy the pessimism and not the optimism.

The BFM Assets Team.

INDEXES VS. STOCKS

Quite often I am asked why I prefer index buying instead of single stocks. I do believe I have some reasonable answer for that and here below I am gonna summarize my approaches.

1. Hard to collect the relevant information

You are aware that I am so bullish on the stock market. But honestly I never buy any single stocks just indexes. Cause I don’t like the luck in the trading and investing. In the single stock trading I see many risk, namely I don’t have enough relevant information about that certain company. Is there any crazy guy in the board, is there any risk behind the curtain, is there any risk on the management ... etc. On one single stocks I cannot see the risks well, but on the indexes I just need to open FT or WSJ and read the relevant information in 20 minutes about DJIA or DAX. You will not find a simpler solution to diversify and reduce the risk with indexes. Honestly I don’t need to know anything about the single companies at SP500, what I only need to have is a general view about the direction of the market.

2. Volatility

The volatility is much bigger on single stocks than on indexes. You can make a fortune on 3D printing companies this year over 100-200% profit. I am happy if you did that. Or if you bought Tesla or Starbucks you have made over 50% in this current year. But never forget this is an optimal scenario, but sometimes will come the worst case scenario when you can lose 50% easily on some single stocks. Just remember for Apple, Enron, Arthur Andersen, Nortel ... etc. On stocks the volatility is much bigger than on indexes that is the reason why I am buying only index. I can’t do 100-200% per year, but honestly I don’t really want to do that because it is too risky. The flip side is that I cannot afford to lose 50% neither. If you are super lucky, never forget will come the super unlucky days too. That is the behaviour of this business.

3. Which indexes we trade?

We only forcusing on the flagship indexes and don’t care about the small composites. We trade DJIA, SP500, Nasdaq, FTSE, DAX, CAC40, Nikkei, Hang Seng. There is no sense to trade belgian or greek markets because all the markets are correlated so sooner or later the arbitrage is disappearing.

These are my biggest reasons why I am trading indexes against the stocks. But I have a piece of good news there is one huge common thing. The market is so bullish. So bear in mind and buy the dips.

The BFM Assets Team.

WHEN DID THE BULL MARKET TRULY START?

For sure, everybody is interested more on the question “when ends”, but before to answer that question first make sense to figure that out when was exactly started the run up.

Vast majority of investors are pretty concerned because five years rally passed, but in fact it is not true that is only a market myth that this bull market started in 2009. Actually, until the middle of 2013, SP500 was moving in a giant sideways channel. The bull market just started in 2013. Look at this chart below.

So here it can come the next question, when ends the rally? Sorry folks, I have bad news, I don’t have a faintest idea, but… – here comes the big but – if you look at the chart above you can easily figure that out of this period is not the end of the rally, it is only beginning of the bullish rally. The breakout after 14 years sideway moves just happened last year. SP500 has just broken out in 2013 September.

The chart below shows the sixth year of uptrend means nothing and doesn’t mean bubble at all which needs it burst shortly. It is only one of our bias. It seems for us too long, but it doesn’t really, if you look at the chart below pretty easy to pick up the point that an average rally period exists over 150 months and we only passed in bullish mood 61 months.

When the Dow is up 68 points in the last six months, is the talking about bubbles truly reasonable?

The BFM Assets Team.

ONE CHART, WHY WE ARE NOT IN BUBBLE YET

Many big and smart guys, not only small investors, have huge concerns about this current market rallies. Just think about David Tepper’s warnings two weeks ago at the SALT conference in Las Vegas. Here is another guy from yesterday Steen Jakobsen, he is the Chief Investment Officer of Saxo Bank, stated “I am confident on is the fact that the second half of this year is going to see a 30% correction from the top.”

I fully doubt that. I do believe this market is not yet in bubble, the bullish pattern is still healthy and I don’t expect any relevant bigger correction this year. Most of the moaning guys are that sceptical because the market has been coming up too much. Yes, true the bull market is in its 5th winning year in row, but I guess the stocks still have room to gain more.

The chart (by Bespoke Investment) brings a clear evidence that US market could be bullish further easily. Over the last ten years, the SP500 is up around 65%, this might seem too much, but benchmark index’s average rolling 10-year return since 1937 has been 103%, so the current 10-year gain of 64.8% is only two-thirds of that average. That chart suggests the bull run most probably will continue.

The BFM Assets Team.

THE GREEN MAY

Investors finally ignored the old mantra „sell in May and go away”. U.S. stock market finished the month with the biggest monthly gain since February, as all the main benchmarks ended the week higher. This May was a great month for the US and European stock markets. U.S. indices made their biggest monthly gains since this February, SP500 gained more than 2% and closed and absolute historical high at 1.923. The gain is even more impressive if we know came to gain after two months losing streak and gained only in May more than 3.1%. Both the Nasdaq and DJIA turned positive for the year of 2014. Nasdaq firstly gained in three months.

May results:

• SP500 + 3,1%
• DJIA +0,8%
• Nasdaq +2.1%

European markets are in seven weeks gaining streak and the sentiment is so bullish in the south countries too, like Italy or Spain. All benchmarks are performing well and made YTD significant gains.

May results:

• Stoxx 600 +1.9%
• DAX +3.5% at a record closing high
• FTSE’s best level since late December 1999

Where are the tops of S&P500? I don’t have a faintest idea, what I only know is that this is a brutal bullish market. Don’t argue with this fact and fight with the market. SP500 is up about 50% in two years. Doesn’t seem any resistance level because the index is in historical high territory so might be the next stop only in the second part of 2014 the magical 2.000. Let’s see.

The BFM Assets Team.