TUESDAY RALLY, FOLKS!

Again and again, that is a crazy shape and paradigm of the US markets in 2014. That is a statistical anomaly, but seems very astonishing so far YTD. Tuesdays perform really well this year, but on the other hand before creating any trading strategy on that such pattern, it means nothing for the future just a small curiosity. But the Marketwatch and Business Insider created this fascinating chart.

Stocks on the Wall Street closed moderately higher yesterday again. The tech and financial sectors were leading the gain and biotech recovered well either. The US markets are pretty close again to their previous tops, it is more effective in terms of European markets, they are at upside of their range. The appetite for risk is increasing again and investors turned into RISK ON mood after the last month RISK OFF behaviour.

Technically the DJIA is pretty close to hit the previous top at 16.600. Only 100 points distance is nothing. The bulls are chasing around the block. We can find a reversal Head&Shulder pattern on the daily chart that is a good signal. If the neckline would be taken at 16.600 could come a great and eruptive rally. On the negative side if any day the index close below 16.400 is a clear signal for bears. This week we are going to have the final answer, which way wants to go the market. In my interpretation I see more possibility for the bullish rally.

The BFM Assets Team.

TREND FOLLOWER GURU: NICOLAS DARVAS

We know plenty of trend followers - in my humble opinion they are the only long term winners of the market. Like Richard Dennis, Paul Tudor Jones, Richard Donchian, George Soros, Jesse Livermore… but there is one remarkable self-taught guy, Nicolas Darvas. He invented the very useful andvery simple trend following technical system, the Darvas Box Theory.

He graduated as an economist in Hungary, but later became a famous dancer around the world at the time of Second World War. He travelled and danced around through the planet and became a famous and successful show dancer. Once in Canada after his show the club owner didn't have enough cash and as a compensation, Darvas received 3000 pieces of Brilund stocks, a Canadian mine company's paper. He didn’t check the price of the stock for two month, but after when he realized that tripled its worth he decided to start investing into stock business.

All of us had already this experiment. At the first trade we made nice profit and we started to believe we are the best traders on the world. He did as well. He started to subscribe to broker’s letters, he read all books about the markets. But you know what happened? He lost everything.

After two years of losing he decided to choose his own way and he invented the Darvas Box Theory. He considered the stocks are moving in waves in bull markets. After huge rallies the stocks are consolidating for a while and break out only, if the sentiment is still strong bullish enough. When the stock was in a box, he was flat and waited for proper time. He bought when the price broke out of the box. He was a perfect trendfollower, didn't want to create the trend only wanted to follow it. He simultaneously set a stop-loss order just under opening price. All in all he traded only the breakouts, and used daily chart timeframe. Here is below a chart template for his box theory.

With his new approach – the box system, he came up and made 2,45 million dollar fortune – now it is worth more than 20 million dollar– within 18 month in 1957-58. Basically Darvas never sold short, but realized that his system might be easily be adapted to short markets too.

If you want to read more about Darvas Box Theory you have to check his book, "How I Made 2,000,000 in the Stock Market," published in 1960.

The BFM Assets Team.

WHY ARE INVESTORS DOING STUPID THINGS?

Most of the investors, more than 90% are losing their money in the markets. That is the fact. They love their stocks when they make money, but they could hate the same stock couple of days later when it makes loss.

In the investment business when we buy any stock or asset we have to handle those 3 following questions:

1. When to buy?
2. Which asset to buy?
3. How big position to buy?

Start with the first question. When to buy? Most of the investors always buy the trendy stocks and assets. Like as the Gallup poll shows recently the investors concerns about stocks is shrinking. Now picked by 24% same as for gold. This number is needed to be answered why the folks are still scared to invest into the stock market? The reason is that they still remember well for the „lost decade” between 1999-2013 when the market hasn’t make any performance.

Now the DJIA is at 16.500 and they don’t want to own stock because they do believe that the market is pricey. I am pretty sure if the DJIA jumps up within 1-2 years to 20.000-25.000 area, these same investors wouldn’t think is pricey they want to own it at that time. They will think is cheap. The point is that most of us are horrible market timer buy the high and not the bargains in most cases.

The second question is the asset. Which asset to buy?

Most of the investors still believe in gold as the chart shows above, but that doesn’t make any sense. In the last 25 years since 1988 the annualized return of gold has been only 1.6%, for S&P500 has been 7.9%. Forget the real estate and gold investment in the 20th century the big money you could make in stock markets. So, why most of small investors choose the gold to buy? Probably they think that they don’t have the skills to figure out which stock fund to choose. I wouldn’t say the stocks are not risky. But that is why we could make far more money than on any other assets.

And now we goes the 3rd point. How big position to buy? If your position size is not crazy big and you have a proper money management like never invest in one certain stock more than 5% of your capital, you can survive all the big corrections and you can be on the winning side.

DO YOU WANT TO EARN OVER 30% PER YEAR?

Invest into our fully regulated Swiss Managed Account Fund: http://www.theblindfoldedmonkey.com/managed-accounts

The BFM Assets Team.

THE CANDY STORE WAS CLOSED FOR WEDNESDAY

It seems yesterday the indices made modest corrections after the 6 days rally. That is a normal pace and part of the deal; we can’t wait the always going up market that is not existing. The DJIA and S&P500 traded in a narrow range and closed slightly in negative territory and breaking the 6-day winning streak. No problem at all. You can’t take profit everyday, the candy shop needs to be closed sometimes. The market took a rest yesterday to go up today and tomorrow further up.

• Dow 16,502 -12 -0.07% 
• Nasdaq 4,127 -34 -0.83%
• S&P 500 1,875 -5 -0.24%

The S&P500 has been trading nearly to the record levels, this slight consolidation means only some short break and rest in the strong bullish momentum and we are expecting more gains in the following days up to 1.891 first and then could come the break out to 1.900. The market is strong and wants to hit the 1.900 mental level finally after closely four months huge ranging. Look at the daily chart how strong the upside power, shows much more strength than the bearish side. The recovery after the two weeks correction was rapid and impressive. There is no doubt we are in a risk off mood and the buyers are stronger than the sellers.

The BFM Assets Team.

ANY PULLBACK, FOLKS? NO, 6th DAY RALLY IN ROW

Yes, positive winning streak is in the 6th day up in row by now. US Equity markets were on 6th gaining day on Tuesday. The leading sectors like Biotech is performing well again and made the biggest two days gain in the last 30 months. The Nasdaq Biotechnology index is up with +3.23%.

The all-time high is in sight and as we forecasted last ago it needs to hit that area within few days and will go further to new highs. The whole April is so green for all US indices. There are many warns by analysts and traders but that is a good sign, because there is still huge buying side potentials out there. Who is crying now, later will be a buyer for sure.

The typical concerns are the bubble, the volume, USDJPY carry divergence, VIX divergence, etc. Forget that complains. Just look at the SP500 chart. It tells more than thousand words. Easily the index took out the 1.872 key resistance level and now heading up to 1.890. This last six days rally is the longest one in the last six months, it is nice isn’t it. The SP500 is up 30 points YTD that is about 1.6%. Does the bearish market really look like this?

The BFM Assets Team.

THE MARKETS AND THE SENTIMENT

US markets are in the longest rally since last October. Which shows again this is a bull market where we have to buy the dips and ignore all the bubble bursting narratives. This is far not yet a bubble. But why made the markets great rally last week, last October and February? That is the great question the rest is only a conversation.

Cause there is one common thing in those three great rallies, namely the sentiment of investors. Take a look at this chart. All 3 rallies in the last 6 month happened when the retail investors were most pessimistic and when they were mostly bearish. I use this AAII statistics as a stunning contrarian indicator. When is the Bulls/Bears sentiment is reasonable low – meaning less the 30% of investors are bullish we should buy SP500 index because there is always a good bargain at those periods and shortly after the market will do a nice bullish rally. In the last more than 2 years all the best days came right after when the retail investors were mostly disappointed and being pessimistic about any rally. And, we only have to be more cautious when they are getting optimistic on the tops. That is the simplest was to make money on the market and honestly I haven’t found so far any better explanation why the market performed well at those three periods since October 2013.

Yesterday the SP500 closed slightly higher due to Eastern holiday but as we anticipated earlier the SP500 after the last week rally hit the 1.870 level and now could come the next key resistance level at 1.890. So today all European markets after few days closure will show a really green day with nice and impressive gains. We bought last Thursday many long positions in DAX, FTSE, IBEX, CAC40 so we are going to harvest today and in the following days.

The BFM Assets Team.

WHAT BRINGS THE RABBIT? MIGHT BE RALLY...

Personally I don’t believe in any seasonality because it is the explanation of lazy traders, they think there is one easy method which works always. I doubt that. The market is more complex that one rule could work forever. This Easter pattern is the same same story, sometimes works and many times doesn’t.

But as some analysts states the Easter holiday is a bullish signal for the market. That means if the market in positive territory at Easter’s days the year is going to be bullish for the rest of the year.

This historical and statistical matrix created by Schaeffer’s Investment Research. They say if “The years when the index is positive through Easter average a return of nearly 10% for the rest of the year, and have been positive an impressive 90% of the time and what about if the index is negative for the year at Easter? “Over the past 30 years when the S&P 500 is down heading into Easter, the index averages a loss of 2% for the rest of the year and is positive just half of the time.”

But remember for the great rule that the past performance is definitely no indicator of future results. But this year could work this method. Why? Because the market after many weeks of ranging and choppy stressful period finally got closer to break out levels. As Dennis Gartman says only three positions you can possible have on the bull market.

• Very bullish 
• Slightly bullish or 
• Neutral 

Recently we are at first stage and extremely bullish because this is a bull market. I am always fascinated when I read the forums like I did yesterday and 99% of traders talking about more severe possible corrections and expecting those always by the following week. Wake up guys! It won’t come any big correction – we had already on Nasdaq so far 10% in the last couple of weeks and now the market wants to go up further. So don’t sell the dips, but buy them.

DO YOU WANT TO EARN OVER 30% PER YEAR? 

Invest into our fully regulated Swiss Managed Account Fund:  http://www.theblindfoldedmonkey.com/managed-accounts

The BFM Assets Team.