INVESTORS ARE IN RISK-OFF MOOD

Yes, pretty much. Against the yesterday rally the investors are still super concerned and sceptical about any rebound or any rally in stock markets. On Monday the SP500 erased the declines of the previous four sessions. The typical retail investor in US hold the big money in bonds or in the bank accounts not in stocks and investment funds.

The two relevant sentiment index is at yearly low levels. Both are turned extremely bearish in the last two weeks.

AAII Sentiment Index:

• http://www.aaii.com/SentimentSurvey
• The bears are in the biggest numbers since last 2013 August.

CNN Money Fear & Greed Index:

• (measured from 0-100) dropped from 95 to 5 in just two weeks. 
• http://money.cnn.com/data/fear-and-greed/
• A month ago the vast majority was greedy, but curently the rate is at 8 which is in the extreme fear territory.

There are many geopolitical reasons why the sentiment is so negative, but the strange thing that technically there is not any reason for that kind of scepticism. The US indices haven’t suffered big correction last week dropped only around 4%, which is not the end of the world. But the investors still believe well when they burned out in 2008 and 2009 and they don’t want to happen that again.

People are all in all are so desperate and they untrust in Mr. Market. They don’t really trust neither in QE tricks and FED’s monetary policy. They don’t believe in the Mainstreet macroeconomic good numbers and data.

But maybe they are all wrong and the market will go new highs. Who knows? But it is worth to pay attention to these remarkable sentiment facts.

The BFM Assets Team.

FEAR IS GOOD

Usually too much fear means that the investors are in risk-on mood and after a while the market needs to turn into rally mood. Friday and the whole last week the market was choppy, investors are concerned about the major global conflicts like Iraq, Ukraine and Gaza.

Therefore, the negative sentiment of retail clients is pretty pessimistic and US equity funds endured 16,4$ billion in outflow last week. That is the biggest exodus of funds since 5th of February. I just note here the best rally occurred this year in February.

Finally Friday all major indices broke the cold streak of decline and turned green. The volume was thin due to the holiday season, but the day was pretty good for stocks. Dow posted its biggest one-day point and percentage gains since March 4.

• S&P 500 +1.2%, for the week + 0.3%. 
• DJIA +1.1%,, for the week +0.4% 
• Nasdaq +0.8%, +0.4% gain for the week 

The small-cap Russell 2000 outperformed the other benchmarks and is firmly in the green for the week though +0.7%, bucking the negative trend. That’s certainly a change of pace for the Russell, which is still underperforming the other indexes for 2014 YTD.

Technically the Dow Jones made the break Friday so the way is opened to north. Our next resistance is at 16,880.

The BFM Assets Team.

WAIT FOR THE CONFIRMATION!

We have been asked specially yesterday what we are Doing now in such a falling market, when the market falls like a stone.

Like this - yesterday and tonight closures:

• DOW -0,46%
• SP500 -0,53%
• Nasdaq -0,46%
• Nikkei -2,98%
• DAX -1,29%

Our answer is simple, still wait and keep your patience and wait for the confirmation of breakout on the long side – as we told this Monday. Until the resistance of 3,900 at Nasdaq is not taken, don’t buy or sell, don’t jump in and out, just wait for a conformation on the daily chart and enjoy the bargain price next week and the summer, beaches and girls.

The BFM Assets Team.

SLOW DAY... THAT EVEN MEANS TROUBLE

Finally the big bounce hasn’t occurred yesterday after the huge sell of last two weeks. The cat was still dead yesterday. The US stocks started the trading firmly in red:

• S&P 500 -0.4%
• Dow -0.3%
• Nasdaq -0.6%

During the session all major indexes all bounced off their intraday highs and finally they consolidated around breakeven:

• S&P 500 — +0.03points
• DJIA — +0.1%
• Nasdaq Composite — +0.1%

This consolidation and pretty boring trading session might mean good sign for today some breakout. After 8 days losing out of 10, the DJIA consolidated for the second day, so maybe the prices are getting to be good bargain for traders. Let’s see today the market’s reaction. The investors generally are still concerned about geopolitical risks and fear of European economy’s weakness, just think about the yesterday disappointing Italian’s GDP report.

Technically still valid the breakout level on Nasdaq the 3,900, this key resistance level needs to be taken to see some significant gain on the long side.

The BFM Assets Team.

FEAR DRIVES THE MARKETS

The endless scary headlines were driving investors crazy yesterday too. The traders nowadays have many fears like Russia, Gaza, FED interest rate policy, Ebola … etc. They really start to worry about some huge geopolitical turmoil and those freak them out and turn them into risk-off mood. As the old rule says “Fear sells, happiness buys.”

U.S. indices closed sharply lower yesterday following reports that Russia is building up its military presence on the border with Ukraine. Finally, it was only a gossip, but was enough to push US markets in the deep red territory.

The close:

• S&P 500 -1%
• Dow -0.9% 
• Nasdaq -0.7%

The Dow Jones has fallen in 8 out of the past 10 days, so those 10 days passed almost without any rebound. The picture is more complex if we see:

• Dow is -4.1% its July 16 record close
• Dow is -0.9% in the year to date
• Dow is its lowest close since May 20

Will markets rebound after this selloff? For sure that is only question of time. If something goes down needs to come up too. Technically seems still the same key level on the Nasdaq chart. The index should close above the 3,900 level, if it would be taken the rally could start again.

The BFM Assets Team.

GREEN DAY AGAIN

After the brutal last week, US benchmark indices turned into green finally again on Monday. They gained and rallied US stocks after the S&P 500 endured last week its worst weekly percentage drop in two years.

• SP500 +0,7%
• DJIA +0,5% (YTD still in negative with -0,04%)
• Nasdaq +0.7%
• Russell 2000 +0.9%

This week will determine whether the market break up or break down. During this volatile week we are going to have a proper answer for that question. The question is, we are facing to rally or decline. What to do now? Just patience and watching and waiting. We should expect some extreme volatility for this week so you should fasten your seatbelts and reduce your position sizes.

The reason of volatility is the fear. After a great rally, the SPX hasn’t seen a 10% correction in over three years, and hasn’t seen more than a 6% correction in nearly 20 months vast majority of investors are scared enough. The investors remained cautious over the timing of the Federal Reserve’s interest-rate hikes too since last week FOMC meeting.

In terms of technical analysis the Nasdaq should close above the 3,900 key resistance level on the daily chart and if that level is taken that might be a good sign for bulls.

The BFM Assets Team.

OSTRICH-EFFECT

"I am positive", you have realized this affects many times in your trading carrier, right? It happens when your portfolio or positions are going against you.

In the trading there is pleasure and pain when we gain or lose. This pain and gain come from the fluctuation of our portfolio and we feel good when our portfolio increases and badly when loses. In other words, the up and down fluctuation of our account causes direct effect on our emotions. 78% of investor is functioning with ostrich-effect, they want to avoid the bad news and close out the negative effects.

They prefer to pay attention to their positions when they expect to see good results and gains. They are more often log into their account when the media filled by good news about the market. The analysis based on 100.000 accounts at Vanguard group, so it was a wide scale report for two years.

What we are doing at ostrich-effects, the followings:

• We don’t look as often on the account as normally because we don’t really like to see the size of the damage.
• We start to call that position a „long term” one. Honestly, I have never met any trader who doesn’t want a „short investment” with a quick profit. Who is the idiot who likes the long stressfull period waiting for the profit. 
• Ostrich-effect is stronger in men than in women.
• When the investors don’t pay attention to their portfolio it means they are trading less. In some cases protect them from bigger losses and doing more stupid things like get-in get-out frustrated trading style. Ostrich-effect helps them not overreacting the severe market drops. 
• Between ages 20 and 40 the traders are affected more by ostrich-effect.
• Males log into their accounts roughly 50% more frequently and trade 50% more than do females when is performing well, but when the account turns into trouble they tend to ignore checking the account more often than women.
• Investors should be less likely to log in and check their accounts after the news media has reported that the market went down and higher returns should induce more attention.
• Investors are more likely to log in when the market was up over the last day.

All in all we tend to close our eyes when the train is coming and just reopen again when the train is leaving again and the market and our portfolio gets back into positive track.

The BFM Assets Team.