ARE YOU BORED? THAT IS GOOD.

If you have the feeling the market is so boring you are right. The S&P 500 has done 13 consecutive trading days without closing up or down by more than 0.5%. That is good sign of bullish market because after five weeks gaining the index couldn’t go down significantly. The history indicates that is a good marker for more bulls. When happened earlier this same pattern within a week usually the index jumped couple of percentage higher. This pattern might be a silence before the storm.

Without any significant moves, this narrow trading range and low volatility was the same again Monday. Only the Nasdaq was green at closure thanks to Yahoo, Tesla and Microsoft, those three tech stocks helped Nasdaq to gain for another day.

S&P 500:  -0.3%
DJIA:         -0.2%
NASDAQ: +0.2%

The European markets after four weeks of gain pulled back Monday thanks to the Scottish independence issue, which seems more serious now.

The slight correction and consolidation in US and Europe meaning the investors after few weeks of rally take a breath. The S&P 500 is up 8.3% this year, which is nice, so Mr. Market deserves some rest. Technically on S&P 500 we should wait of confirmation of bullish momentum. The index needs close above the 2,008 level. If that will happen the bulls will lift up the index much higher further.

The BFM Assets Team.

FORGET THE GOLD?

My short answer is yes. The gold has a PhD from fear and geopolitics, so if is there any fear or turmoil in the world the gold usually jumps higher. If you look at the scary headlines in the couple of last months you could find easily many concerns and fears, but the gold is performing poorly and doesn’t show any bullish momentum. We are at the same level as in 2010 September. The price has come down from the record of 1,920 to 1,200 that is more than 30% drop so far.

There are still many gold advocates who forecast a new rally in each month and they recommended building up a longer term gold portfolio. I doubt that, I don’t see any long side strength in gold and we are expecting more loss. The new mantra now that is that September is the best month historically for gold or the demand rises in India ahead of wedding season in October. They say India loves gold. But that fact is that demand for gold in India fell 39% only in last year. Some pundits, forecasters see 1,400$ price in the short-term, maybe they are right, might happen easily some rebounce, but the trend is bearish for gold that is obvious. After the bigger than 35% drop the investors not panicing yet, but they will below 1,000$, I am sure about that.

Why we are sceptical about any gold rally? Here are some arguments below. 

The recent weakness of gold is fundamental. Historically and statistically proven that there is a negative correlation between stock markets and gold performance. The stock markets are symbols of euphoria and gold is symbol of fear. When the indices are performing well the gold needs to go down. The lost decade of 2000-2010 when the stock markets were basically only were ranging was a great period of gold, but in 2013 the DJIA and S&P 500 broke out from the huge range and started a rally, which is negative sign for gold. 

Gold is trading now close to 1,200$ levels far from the 1,920$ top and there is a high chance to test 1,000$ shortly. Gold tends to move in long multi-year trends and now we see a clear bearish trend since 2010. Plus when the FED will start to raise the interest rate, then gold will come under more and more pressure. So, we see the only option is to stay away from gold.

The BFM Assets Team.

SURPRISE!

The main indexes have been strengthening in Europe yesterday after the big surprise by ECB. Unexpectedly the central bank cut its key interest rate and moves to buy bonds and asset-backed securities from October. The ECB shocked the markets by announcing the interest rate cut and indicating that its own QE program is set to begin next month. European benchmark indices were traded massively higher on the news, but gains finally have been more modest.

FTSE +0,06% - DAX +1,02% - CAC40 +1,65% - MIB +2,82% - IBEX +1,96% 

 

In US the optimism from Europe sent indexes to new intraday highs, but later indices dipped into the red territory. At the beginning of the session S&P 500 and DJIA touched intraday record levels. Finally, they plunged and closed all US indices in red.

DJIA – 0,05% - Nasdaq -0,22% - S&P -0,15% - Russell -0,43%

Seems now the US markets are just tired after a great four weeks rally and the S&P 500 closed below 2,000 and closed its third day decline in a row. This is not a surprise since DJIA, S&P and Nasdaq gained in the last month more than 4%, and Mr. Market needs some days of consolidation. That is the reason behind the pullback and modest losses. In a closer technical look of DJIA, we found a huge reversal head&shoulder pattern, which might mean for the future a target price of 17,800 for the Dow, if the neckline is taken. When is going to happen? Nobody knows only the Crystal Ball owners.

The BFM Assets Team.

EUROPEAN AND U.S. GAP

Yesterday US indices closed mostly lower, but the European stock markets performed really well.

• Dow: +0,06% - NASDAQ -0,55% - S&P 500 - 0,06%
• FTSE +0,66% - DAX +1,25% - CAC40 +1% - MIB +1,89% - IBEX +1,23%

As we anticipated Wednesday in our blog we are expecting more gains in European markets in the following weeks than in US. The news from Ukraine lifted up higher the European markets across the board. The European benchmarks rallied Wednesday after Russian President Vladimir Putin and Ukrainian President Petro Poroshenko had agreed to the outlines of a cease-fire between Ukrainian forces and pro-Russian rebels fighting in eastern Ukraine.

The German DAX is up for four straight day, but there is still room for more gains to reach first the previous July top, now is off its record by 4%. If you get rid of this day-to-day noise, you're looking at a pretty decent outlook for the stock markets in Europe generally. Maybe today more good news will come in Europe, at the ECB meeting Mr. Draghi would take steps to stimulate the economy in the euro region.

Just to pick up one index from Europe, the CAC40 has a great upside rally opportunity. Yesterday CAC40 crossed and closed above the 4,400 key resistance level, so now the way is clear up to the previous record of 4,600, which might be reached in September.

The BFM Assets Team.

PANCAKE PATTERN

US indices closed in mix Tuesday and doing almost nothing after one day break of Labor Day in U.S. Market was flat like a pancake.

• DJIA: -0.18%
• NASDAQ: +0,39%
• S&P 500: -0,07%

The day was kind of consolidation after achieving record price the S&P on Friday and it is still staying above the 2,000 key level. The index during the session hit an intraday record at 2,006 then turned into red later. Pulling back slightly after a great rally of August, the previous month had the largest monthly increase since February.

What is the outlook for September? Historically is not the best performing month.

In terms of techinal analysis the S&P 500 is on historical record so we couldn’t say really nothing. But the DAX is so interesting, on the chart there is a "Cup and Handle" pattern and if the neckline is taken at 9,600 easily might rally up to 10,000 within a week easily. For sure we don’t have any clue when will happen the breakout, to be honest we are horrible market predictor and timer, but for sure will happen.

The BFM Assets Team.

BULL AND BEAR?

Due to the Labor Day yesterday the markets did nothing; they are pretty flat and stayed at the same level more or less. So, we have time now to look at the bigger picture.

We collected below some argument for bulls and some argument for bears. Bulls think that the markets are ready for more gain and still there is a huge room on the long side. Bears think stocks area about to tumble. All in all that is good if we see many concerns around us and the sentiment is not euphoric. The investors always need something to be scared of. Will the bulls or bears be stronger? We bet on bulls. There are many fundamental and technical reason for that, but it is good to know always what are the weaknesses and what is the interpretation of the other group.

Bull’s arguments:

• Strengthening the US economy. The companies are performing well and hiring more and more people. The U.S. GDP growth might be 1,5% in 2014. 
• Stock buying back programs by companies. They are buying back their own stocks. It creates more demands on the buying side. 
• Future profit gains are good in the main street. 
• Low interest rates. Historically low and it makes stocks more attractive. 

Bear’s arguments:

• US interest rate could rise soon by FED, realistically in 2015. 
• Stock rallied a lot and they are pricey by now. 
• P/E ratio is around 20, which is relatively high. The 10 year average is 14,1. 
• US and European economy will shrink thanks to the Ukranien conflict and the embargo on Russians. 
• China will slow down shortly.
• Many geopolitical turmoils around the planet. 

The BFM Assets Team.

YOU CAN'T SERVE TWO MASTERS

In other words you can have comfort and you can have profit at the same time in investment. It seems very comfortable and convenient own the same instrument everybody loves around you. But you have to pay a big price for the comfort feeling. Buy those assets are ignored or disliked by investors. The pricey stock statistically underperform usually the cheap and heated stocks. The reason is obvious the love and popularity are already built in the price.

It always feels better buying something that everyone else is buying too. That is why John Maynard Keynes said most of us would rather fail conventionally than succeed unconventionally. If you accept the fact that the biggest return always starts with pain and all loosening investments are comfortable you will be a much better investor.



Just think about that the best things in your life too happened slowly and begun painfully that is not different in the investment. No pain, no gain. But whoever said being a contrarian was easy?

Investors and traders are tend to listen those people who share their view. It is so comfortable just to listen to the consensus and don’t argue with that. We tend to ignore all informations which against our ideas. You look for only investors who share your view and you try to stay away from the contrary views. That is mentally logical, because is more comfortable, but not profitable in investing. You should do the opposite. You have to try to be the "advocatus diaboli" or find a mentor or coach who helps you to destroy this mental obstacle.

You can’t do better than a mob if you are part of the mob. Be contrarian and do sceptical buys on the fear, sell on the greed because if you close out the herd noise you will realize the public buys the most at the top and the least at the bottom. For instance when all the words you hear about the economy are bullish, you may want to run in the other direction.

Basic investor behaviors aren’t changing, they buy after a period of good performance. In short, they buy high and sell low and repeat the process multiple times. This is a part of human nature to buy at wrong time and follow the mass. Over the past two decades the S&P 500 returned 9.22% a year, on average. The average investor got just 5.02% a year. That's a huge gap, 45.6% lower.

They love to act in herd, meaning all investors rush to purchase or sell stock just because others around them are. "I see someone investing, I suppose that they probably have more information than me." Most people are just terrible at investing because they love the comfort feeling. But if you want to be profitable you have to feel the pain and you have to hear the bad words by your colleagues, friend, wife that you are a complete idiot and you are wrong. But by the end of the day you will make money, and that counts only. As Gordon Gekko said: "Everything about money, the rest is only conversation." Just try to serve one master, profit one.

The BFM Assets Team.