THE MARKET IS REALLY PRICEY?

There many too investors who convinced the market went to much up and they are getting more pessimistic about the bulls, specially after the great last month rally. The DJIA has come up closely 2.000 points since the middle of October and stays on record level. Day by day hits new historical highs. They do believe the market is overvalued and it is in a bubble phase and pretty soon that needs to burst.

They have anxiety about the state of the financial markets and they tend to catch the short side of the market. They burn out always in this condition of the market. In the last 4-5 years I have heard thousands of times the market is too pricey and needs to come a correction. Yes they are right many cases, because in the long bullish secular trend what we are experiencing now has correction periods, but the trend is obviously bullish and the bulls stay with us for many years more.

We are really fascinated by this chart which gives us bigger perspective and shows the big picture about the stock markets. This one chart by Merrill Lynch BofA tells more information than thousands of words that the secular bull market just got started.

The BFM Assets Team.

ASIAN OUTLOOK

The weekend is over and Far- East markets have closed this morning in mixed colors.

• Nikkei 225 16,781, - 0.59% 
• Hang Seng 23,745, +0.83% 
• Shanghai 2,474, +2.31% 
• Sensex 27,863, -0.02%

Asian stocks held firm Monday trade after great trading in week in U.S. Japan's Nikkei slipped slightly 0.4% as the yen rebounded on profit-taking in the dollar, maybe some investors took some money off the table after the market's rally to record highs. Hong Kong index, Hang Seng posted a solid rebound on Monday after the index had been declining for five straight sessions before Monday. Over on the Chinese mainland, the Shanghai Composite Index rallied 2.3%.

Technically the Nikkei has done an impressive rally since middle of this October; the last closely one month was one of the best in the last 3 years. Meanwhile recently we can experience some consolidation which might retest the 16,350 key support level and then it must turn back into bullish mood. This backtest might happen still this week.

The BFM Assets Team.

SOME SENTIMENTS ABOUT THE MARKETS

I know it is very subjective, but I want to pick some examples how the mass out there think, feel about the market. I always try to understand the sentiment of the crowd and the investor’s society, but it is an impossible mission. The sentiment surveys tell us what the majority of investors guess, the market is bullish or bearish. That is pretty important to know the sentiment of the crowd in this case you won’t be the part of that losers game. Typically you have to do the opposite what mom and pops think about the market. Here below I just randomly collected some funny and short forum comments about their expectations. These comments are reacting on the bullish rally in the last two weeks:

• The Market needs to go down. Not based on fundamentals or technical (those cases can be made for both). No, it needs to go down because I majorly shorted the S&P today.
• The insane, criminal fraud continues.
• I have been out of the market since 2007. Watching it climb is fun. But I know what would kill this market. If I start investing again...
• just waiting for the pull back.

The other sentiment indicator is the AAII weekly report. It says the retail investors are overwhelmingly bullish. The historical mean in bullish sentiment is at 39% and recently we are at 52,7% level, which seems relatively high. So all in all the picture is not clear and obvious, there is quite a big noise. You see the market is so difficult to trade with because the humans are behind it and it is an extraordinary hard task to read their behaviour.

The BFM Assets Team.

STOCKS, GOLD, AND OIL

The markets were not really fazed by the republican success in midterm elections against the democrats. Actually the rally continued on Wall Street and the DJIA hit new high again yesterday and S&P 500 came within a point from doing the same. The DJIA hits its 20th record close YTD 2014.

• DJIA: 17,484.5, +0.5%
• S&P 500: 2,023.5, +0.5%
• Nasdaq: 4,620.7, -0%

The DJIA chart below is obviously shows the strength of the bulls.

Gold is falling like a stone. Gold was down yesterday by 1,9% and closed at 1.145$, there is no doubt the short side trend is the real direction and pretty soon we are going to see the gold metal below 1.000$, maybe still in 2014. Technically the support is at 1.200$ level was taken out and door is opened for more downside movements. Until the stock markets are bullish there is no real relevance of any long side rally of the gold or silver market.

The WTI crude oil after a massive plunge since September, the American sweet crude oil prices jumped nearly 2% Wednesday after the inventory report. In terms of technical analysis the 80$ is a key support level for the crude oil, so we are expecting some rebound from this level next week and some kinds of consolidation around 80-90$ range in the next following weeks later on.

The BFM Assets Team.

CLOSE TO ALL-TIME HIGHS

All in all the last 2-3 weeks were great in US indices and we have experienced a nice V-shape recovery, the Dow has gained 7.9% from its mid-October closing low, and the S&P 500 has advanced 8%. We have come so fast within the last two weeks. Yesterday the rally stopped for a while; however the DJIA advanced again and stays close within striking distance of all-time high. The stock markets are slightly muted so far this week, after weeks of wild trading.

If you are a bargain hunter and you want to try yourself in some undervalued markets and looking for good bargain indices please check out this list, which shows the lowest P/E ratio countries.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/11205446/The-worlds-10-cheapest-stock-markets.html?frame=2721254

Yesterday data:

• DJIA +0,1%
• SP500 -0,3%
• Nasdaq -0,3%

We have had a massive rally so recently the market does some consolidation, which is normal, the market a bit tired by now. Technically the 2,010 key support level was tested yesterday in S&P 500, so we could see more gains this week. But we don’t see honestly at which price might the rally finish and is impossible to name any resistance level due to the record levels. What we see the bullish momentum is strong and valid for more weeks further.

The BFM Assets Team.

BEST 6 MONTHS COMING?

The old calendar says on Wall Street the period from November to April is the “Best 6 Months.” During this six months period in last several decades markets made massive gains. This is the opposite the old one of “Sell in May and Run Away,” which recommend forget the market in May and only get back in October.

In the table below I have listed out each instance. Honestly I am a real fan of seasonality like Xmas-Rally, but empirically has worked this system in most years, which statistically too relevant to ignore as a rule. Below here is a chart since 1960, the average run-up was 18.7% and the average drawdown just 3.3%.

The BFM Assets Team.

I DON’T KNOW

I suppose this is the most worthwile sentence in trading. I have met hundreds of trader they were always sure about the direction if oil, EURUSD or S&P and I never heard from them I don’t know. They were convinced and sure about their forecasts and that is the reason why all of them are loser traders. We have to be brave enough in investment business to say many times if we are asked about the market – I don’t know.

This is one of our biggest bias is the Dunning-Kruger effect. This phenomenon explains we are not able to recognize how incompetent we are in many things, specially in trading. It is not a question of intelligence or school how to handel this bias, but honestly I do believe the being educated means being able to differentiate between what you know and what you don’t and the ability to say sometimes - I don’t know. Poor performers in the investment business they tend to forecast and stick to that after all facts show he or she was wrong, but they add more and don’t stop arguing with the tape and the market. Their incompetence is blessed with an inappropriate confidence. In the D-K effect we attend to overestimate our skills and intelligence.

It is so easy to judge the idiocy of others, but so hard to judge us. Typically in investment not knowing something (ie. future) drives us into losses, funny enough, but knowing something creates the biggest losses on our portfolio. So don’t try to predict the price of oil, S&P just says - you don’t know. In this case you wouldn’t have any mental commitment to your positions which will help you close the losing positions earlier, before your account crumble like a tissue in the fire.

The BFM Assets Team.