ANOTHER DAY, ANOTHER RECORD

In the last two weeks everything was about a rally. Green bars everywhere across the board. The SP500 closed again at new high on Thursday – 1.920 – and made its 13th record of 2014. Yesterday the market didn’t care at all about the disappointing Q1 US GDP data, all major indices just stopped for a while and then gained further. The market does what it wants to do – go north. Nothing can stop this movement, Mr. Market wants to go up higher and nothing could block its own way.

• Dow 16,699 +66, +0.40% 
• Nasdaq 4,248 +23, +0.54% 
• S&P 500 1,920 +10, +0.54%

Show the strength of the bullishness that all three benchmark US indices closed at their intraday highs at yesterday US session. Most likely this pattern means more gains in the following couple of days.

In Far East, the Nikkei has just finished six days rally in row and closed higher yesterday again. Basically we are quite bullish in Nikkei in the last weeks and we are expecting more gains further in June and July because the index has not performed well and was oversold in the Q1 2014. And, it is a good bargain now.

In Nikkei on 21st of May there was a clear break out at 14.200 resistance level and our next target is at the key level of 15.000 points.

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The BFM Assets Team.

FOLLOWING THE CROWD IS A GREAT WAY TO LOSE A LOT OF MONEY.

After four days winning streak of SP500, the index stays steadily over 1.900 at record level. Against all concerns in the last couple of weeks all US indices gained brutally in the second half of May. Why?

Because if the markets are driven by bullish and bearish sentiments and if you buy at the top when everybody is euphoric and prices are high you will lose, but if you do the opposite of this like we did when everyone was concerned that is the only way to be profitable.

The market is a pendulum. Always swings between optimism and pessimism. We have to sell the optimism and buy the pessimism, but most of retailer traders do the opposite of this. So, we have to check how they work, and we have to do the opposite of that. When they are bears we have to be bullish and when they bulls we have to be flat or bearish. If you want to have a better performance than the crowd, you must do things differently from the crowd. You have to be contrarian and never trust in the consensus because the consensus was the market would go down, but look at the chart now and start to cry on it you traded the short side of the market in the last ten days.

We were long because as John Templeton once reportedly said “Wait till the moment of “maximum pessimism and then pounce”. That is what we did. In May everybody was super pessimistic about any rally. We learned the lesson “When all the experts and forecasts agree – something else is going to happen.”

The public buys the most at the top and the least at the bottom. If you look at this chart below you will find in AAII retail sentiment statistics that typical retail clients were pessimistic since end of April. The bullish attitude was extremely low.

On this other chart you see with the vertical red lines when was the highest pessimism between the public and all these events followed by biggest rallies. At these points the bullish attitude usually was below 30% and bearish sentiment was over 30% or 40%. So, we have to buy only these days at the highest pessimism.

When the pessimism and bullish attitude is under 30% that is a good opportunity to buy the market. Since last week the retail investors are more bullish and got over 30% and started to be more optimistic:

So now we have to cover our long positions and stay flat and more defensive because some correction will come for sure. This AAII weekly sentiment survey is the best short time contrarian indicator which I have ever seen. With this statistic you can easily see the main sentiment of the mass. Forget consensus.

In short the typical public investor buy high and sell low, and repeat the process multiple times. But we have to be contrarian. As most great investors practice something called contrarianism. I know trading against your friends and the consensus from the CNBC is hard, but whoever said being a contrarian was easy? It always feels better buying something that everyone else is buying too.

If it was all wine and roses, anybody could do it.

The BFM Assets Team.

CAC40 AND SCHNEIDER STOCK

You can ask I lost my mind post about a releatively unknown stock from France. Sorry for that fellows but I was just asked about this stock and created this analysis and I tought it could worth sharing with you, because it is a good template how works the divergence trading beetwen one certain index and its stock.

In a historical view at the big mortgage crisis in 2007 the Schneider was around 26€/share and plunged massively and bottomed at around 13€ and has started to gain hand in hand together with CAC40 and other benchmark indices till today. In 2011 March made a local top at 28€ and then fall back until end of 2011 and then started the great rally and uptrend which has been with us for around 2,5 years.

The markets always run in cycles meaning optimism and pessimism. It is true for Schneider as well. The trees never grow up to the sky. So all rally needs to be followed by some kinds of consolidation. The consolidation only means 10% per year or 20-30% per in each 4-5 years. But, it will recover after a while because we are in the middle of secular bullish uptrend of the European markets. After two an a half year rally of Schneider’s stocks needs to come some corrections. Why? I have some arguments here below:

1. The market - specially CAC40 – is in strong bullish uptrend , no doubt. But on each market there are faster and lazy stocks. Laggings and leaders. Schneider has been leader till end of 2013 is vasty overvalued by now comparing to the CAC40. There is a great arbitrage gap between the index and CAC40 recently. 
2. The old rule says the leaders will be losers and lazy stocks will be leaders because it is vital behavior the markets. The investors love to buy the optimism, the tops and the rallies and nobody wants to own the lazy and underperforming stocks. Statistically proven that this is the typical loser attitude and one of the worst investment bias. We tend to buy the lazy and sell the trendy and fancy stocks and vice-versa.
3. Currently after the long rally the Schneider is a fancy stock and needs to close the gap between the CAC40 gap. Why? Cause they have to correlate with each other and can one run faster for a while but not forever. And, sooner or later they need to close the gap and catch up each other. It is the only question of time.

In 2 years chart easier to recognize the correlation between them, so now the Schenider is overvalued and overbought and CAC40 is undervalued and undersold.

• There is a huge gap – which means the following scenario for 2014. The CAC40 will gain faster than Schenider this year. It doesn’t mean the Schenider will fall down massively, only means this year will Schneider is going to underperform the CAC40 – around 0-10% range is the most realistic
• The consolidation is started in 2014 which means recently the Schneider underperforming the CAC40 on YTD so far:
• Schneider: 2014 YTD +6.56%
• CAC40: 2014 YTD + 12.46%

• In the bigger perspective the bullish trend of CAC40 is still not violated and we are expecting more gain this year over 20%
• For Schneider the bullish monemtum can countinue further, but with lower performamce in range of 0-10% only, which is not a disaster but we shouldn’t expect that kind ofrally like last year with +16,66%. 

All in all. Our suggestion is to buy all correction periods during this year. Grab all opportunities which exceeds the 4-5% correction level and buy these dip options and hold tightly.

The BFM Assets Team.

NEVER FIGHT WITH THE TAPE...

Absolutely true because against all the correction fears, the market is still bullish mood and gain further day by day. Against all concerns in the last couple of weeks the market hits new historical highs. For instance the SP500 future right is at 1.905. The main consensus that the market is in bubble and need to be burst today or tomorrow. But as Jesse Livermore once reportedly said „The stock market is never obvious”. If some guys out there think they are smart enough to figure that out when comes the correction I have to wake up them, the market always moves to disappoint the masses.

The market always goes that way which creates the biggest pain. And, recently the consensus is to sell and in the last one week the market hit new highs again and killed the short runners.

All smart guys including Paul Tudor Jones is cautious. I have discussed with some traders in the last few days and their sentiment is extremely negative, and now they are surprised the market jumped higher again. Last week at SALT conference in Las Vegas David Tepper said, "I am nervous. I think it's nervous time." He continued, „the market is probably OK. But it's getting dangerous." The respected trader Ralph Acampora stated last week “I have a sick feeling a 25% crash is ahead.” Many of my friends also said to me they are flat or start to short the market because comes at least a 10% plunge in the market pretty shortly. I could bring around ten different stories just from the last two weeks how many people warned me about the bubble.

But, the fact is that they are wrong. I am not laughing on them, I am only shocked how we are not possible just read the tape or put the SP500’s chart on the wall step back 10 feet and you will see this is a bull market. You have to buy the dips and don’t sell the tops. There is still opportunities and I doubt the market is overvalued.

The BFM Assets Team.

STILL NO COMPETITION FOR EQUITIES.

They are performing well in YTD basis and we are expecting after the break out of SP500 more gain further this year. All the three leading US benchmarks are finally positive for the year, and first in the history SP500 closed over the record, above 1.900 level. That is a significant sign of bull market. Mr. Market is discounting all bad news and the optimism is still modest so the sentiment is perfect to gain US indices further, most possible at the lagging Russell 2000 will perform really well in the following weeks.

Last week US markets gained 4 days out of 5 and had only 1 day sell off. Friday, looked like this, before the Memorial Day market closure.

• DJIA +0.38% 
• S&P500 +0.42%
• Nasdaq +0.76% 

All of them are in the positive territory again in 2014. The Dow and Nasdaq are up 0.2% YTD, while the S&P500 is up 2.8%.

Technically the SP500 is showing bullish patterns, no doubt. As we forecasted last week it took couple of days to close above the 1.900 key level. It’s done. After a week consolidation with four dips - at 1.870 - the index broke out Thursday and now the air is opened to further gains. Our target for 2014 is the 2.000.

The BFM Assets Team.

THE MARKET TOOK A GREEN PILL

The statistic of this current week:

• 3 geen days
• 1 red day

The Tuesday big sell off is just a history by now, Wednesday and Thursday the market have been bounced back and moved impressively higher and now the SP500 is in a short distance to 1.900. Yesterday SP500 was traded just 0.3% below those high which was hit on 13th of May. Markets made nice, but volatile week so far.

Thursday all indices closed modestly higher. Yesterday the sentiment was absolutely positive since the bell rang and US indices strengthened during the whole trading session. The Russell as we anticipated yesterday over performed the other indices and was outstripping gains for other indices.

By the way, Russell2000. Some analyst says the Russell fell below its 200 day moving average. My question is that means anything? I doubt that, the MA200 is only able to show the median line and the past, but it has not any relevance for the future. So, we could ignore fully this 200MA believer’s interpretation.

At the bell stock markets ended the day with gains for a second straight session.

• S&P 500 — + 0.2%, to 1,892
• DJIA — + 0.1%, to 16,543
• Nasdaq — + 0.6%, to 4,154
• Russell 2000 — + 1%, to 1,114 – here is Mr. Market’s answer for the 200MA concerns

Technically SP500 made a break out Wednesday at 1.883 and gained further yesterday. The next target and resistance level is at 1.898. If this level is taken we could go up into higher territories heading to 2.000.

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The BFM Assets Team.

EVERYTHING IS GREEN, EXCEPT RUSSELL 2000. I TELL YOU WHY.

Okay, it is only my view and maybe I am wrong. I have two arguments why there is huge divergency, while SP500, DJIA and Nasdaq are rallying, but the Russell 2000 is lagging behind. For instance just yesterday US markets are performed like this:

• S&P 500 +0.8%
• Dow +1% 
• Nasdaq +0.9%
• Russell 2000 +0.5%

The Russell 2000 index swung wildly yesterday and finally managed to close slightly higher, but only made 50% the gain of other US indices. Why? Here are my hints below.

1. Firstly, the Russell 2000 is the most people’s favorite small-cap benchmark — they understand better, so this is really the small retail clients arena and product. Their sentiment turned mostly bearish and having huge concerns about the market. So when the pros are buying the SP500, DJIA and Nasdaq the Russell is mostly sold by the rookies and housewife.

2. Secondly, the Russell 2000 went to much up last year and after that huge and strong rally needs to consolidate for a while. In the long-term the enormous arbitrage gap between the DJIA and Russell 2000 needs to get closer or being closed. It needs to be done time by time, the only question is when occurs. So DJIA needs to catch up in the following weeks and Russell needs to consolidate or being flat.

Those points don’t mean we are short on Russell 2000, not at all. We just started to buy again Russell 2000 because it is a good bargain.

The BFM Assets Team.