DEAD CAT BOUNCED

Yesterday and the whole week. The recovery couldn’t succeed, so the market needs to go down further. I have to say the correction is just started and the market might stay in a volatile and bearish mood for few weeks. In the last two weeks the declining market was able to make only the „Dead Cat Bounced” pattern. That means the major falling trend was only broken by brief and short recoveries.

The chart say everything. The rebound failed yesterday and made only a bull trap in the early session of US markets and during the night Asia was falling further and the EU market openings this morning all stock markets are diving.

The bears have arrived. Welcome! After more than 400 days bullish market, we are going to see some bigger correction easily which could be wider than 10%. The DJIA was taken out the 15.750 key resistance level tonight.

The BFM Assets Team.

CARNAGE CONTINUES

Not only after the FED’s last night decision US stocks went down again. The last meeting with Bernanke reduced further the pace of monthly asset purchases to $65 billion from $75 billion. The reaction was not severe, but after Monday and Tuesday recovering the markets started to go south again.

• SP500 -1.02% closed at 1,774
• DJIA -1.19% fell to 15,738

The glory days are over? It is still early to say any positive or negative. What we only see that all sectors are diving. This could be the canary in the coal mine. It is not a good signal and technically seems to the US markets will go down further. Where and when stops the correction? Where hit the knife the ground? To confirm that we need to see some platform built in the following couple of days. This week two days recovery was weak and wasn’t sufficient.

In technical perspective the DJIA took out the 16.150 key support level and now at around 15.800, if the support of 15.750 is taken could come some serious short fall scenario. Let’s see the upcoming days.

The BFM Assets Team.

DON’T PANIC

Even taking the market last Friday the biggest decline for seven month but in the last three days the market recovered partly. This week we have been up each day, the last week massacre has gone.

I remember well this Monday, only two days back there was a doomsday sentiment in all media and investors were close to panic. Don’t do that! It is only the normal process of the market. The US markets dropped only from the tops less than 5%, Nasdaq plunged below 2%.

The size of the correction is huge? Exactly not.

 

• 5% correction is nothing. Happens at least three times a year. 
• 10% correction is more serious and has not happened since 2012, normally it occurs each year.. 
• 20% correction could mean the end of the bulls. It happens in each 2-3 years. We are still far from that. 

We have been in 2013 in a so comfortable market climate, there was not any volatility. My bet in 2014 we are going to see much wider volatility in US markets. We have been almost forgot how looks like a real correction. So, you shouldn’t panic we only need to remember the market typically behave in up and down mood. Without correction the markets could not go up again to new highs, it is imminent part of bull rallies.

The BFM Assets Team.

EMERGING MARKETS ARE POPULAR AS DENNIS RODMAN AT UN SECURITY COUNCIL MEETING

There are thousands of concerns about the emerging markets, but my bet is cheap enough to start buying.

In the periphery there are glooming fears in Turkey, China, Brazil, Indonesia, Argentina, South Africa...etc. There is some sort of panic in those countries. Emerging equities are performing badly due to the slowing industrial activity, the commodity-price downturn and fears of currency meltdown. Fundamentally they don’t look good now. But don’t forget last spring the European situation seemed disappointing too and finally they made a great stock market rally. The charts are showing selling pressure technically, but in long-term might be a good bet. Cause the valutaion is so low and they are at good bargain now.

My argument is the US markets made a great 2013 year and I am sceptical about a great rally this year. So, we are moving to other markets which mean emerging markets.

Technically the brazilian Bovespa dropped last two years more than 30% and since last August rebounded and couldn’t go down further, our expectation is easily could come up to 60.000 area which means around 25-30% profit rate.

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The BFM Assets Team.

BUY OR BYE

The markets turned south last week mostly Friday and started some big sell off across the board. The SP500 -2% suffered the worst one-week percentage decline since June 2012 and DJIA plunged -1.9% and took its worst week since November 2011.

So far this year the S&P 500 has lost 3.1% and the Dow is down 4.2%.

Is it a new “Buy the Dip” opportunity or beginning of a bigger correction and we have to say Good Bye for the bullish markets? It is too early to say yes or no. We have to see some days the correction continues or rebound the indices. These deep losses teach us again to be humble with Mr. Market. Recently everyone is scared about the big fall because we were super optimistic about the bulls and we couldn’t imagine any big correction by now has arrived.

What happened so far this year? The total opposite which was agreed. Mr Market goes against the consensus:

• SP500 -3,1% - consensus was super bullish
• Gold +5,5% - everyone was bearish
• Eurostoxx -3,3% - everyone was bullish

To put in bigger perspective than last week in 2014 the US indices has been just ranging around the tops and couldn’t make any break out further. They lost the momentum. The SP500 three times tried to close above 1.850 without success this year. Finally, the correction took out the 1.810 key support level and now the price is around 1.793.

The BFM Assets Team.

DO MACROS HAVE REALLY EFFECT ON MARKETS OR NOT?

For many many years I have been in favour of André Kostolany’s quote that „The relation between stock exchange and economy is like a man walking his dog. The man walks slowly, the dog runs back and forth.” But I have to revise my thinking, because I have found some remarkable statistics about why it is not true always. Sometimes it is, but plenty of times not at all.

First that chart below looks confusing. Just look at that, there’s no correlation at all as my previous hypothesis said. It appears that slightly negative the correlation between the fundamentals and market movements.

This chart proves me again and again the markets are inefficients and driven by the mass not by the micro or macro facts and data. We are all as speculators not rational human beings at all. We are totally irrationals. We ignore the facts in most cases. We are making decisions emotionally. But as Warren Buffet says „…Returns decrease as emotion increases…”

And what is the lesson for the future from this fact? As a speculator we should always hold economic news at a bit distance when considering our investments. That is why I never care about the news itself. I don’t like to interpretate right after issued the news because in this case it would be only a red-black casino. But what I am really interested that how the market reacts upon that news. All in all I don’t care about mine of any others interpretation, I only care about the market’s interpretation.

The BFM Assets Team.

CHARTS OF THE MONTH

Don’t be scared only two charts. I love those two because most of the analysts, investment banks, broker houses rather love to forecast and in most of the cases they are wrong. So as I mentioned earlier my mantra is going against the consensus and the mob. My ABC Rule - „Always be Contrarian” is working well. Therefore I don’t care about the smart institutions or trader’s forecasts. I am only using them to see the common sentiment in the market and do the opposite of that. Statiscally proven that the massive majority of forecasts for the future market movements are worthless, hopeless and totally wrong. Never listen to anyone. I have to tell you a secret – there are no gurus.

Day before yesterday Bloomberg posted those charts about the investors sentiment for 2014. Without these data – you can check back in my blog – I recommended to you to buy and hold gold, some commodities and the Bovespa, the brasilian index. And being underpositioned in the US markets. But frankly the Nasdaq and Russell still performing well in 2014.

These chart are confirming back my hypothesis.

The assets of commodities are so unpopular. The gold seems really heated. In my perception those are good news, if something is hated it doesn’t mean automatically it is bad instrument, it only means unpopular and there is huge buying power outside which could any time get into the market and push higher the prices.

The other chart is about the different equity markets and regions. Before I saw this chart I underpositioned myself in US equities and started to buy like an idiot the Bovespa, FTSE100 and Nikkei. That chart proves me that vast majority of investors are bullish on US market, that scares me. When everyone agrees something else bound to happen. This chart confirms my preconception that I made a good decision and I understood well the investor’s sentiment.

The BFM Assets Team.