WHAT A CHOPPY DAY!

U.S. and European indices ended Tuesday with a choppy trading session and went broadly lower. The market turned from optimism to red territory when European Union announced the new round of sanctions against Russia for its role in the civil war in Ukraine. These sanctions mostly effect on the following sectors: finance and oil production. At the beginning of US session DJIA was steadily above the 17,000 level, but finally couldn’t hold and closed at 16,912.

After the announcement all major indices in US, S&P500, DJIA and Nasdaq started the sell off to the end of session. Generally all benchmark indices suffered a severe drop, except the Russell 2000 which gained by 0,2%, surprisingly because it has been underperforming this year the other indices.

• S&P -0.45%
• Dow -0.4% 
• Nasdaq -0.05%
• Russell 2000 +0.2%

The FOMC holds its two-day meeting that started Tuesday morning, so today the choppy behaviour of the market might stay with us for today as well.

Technically the Nasdaq specially doesn’t look disappointing. If the index will be able close above the 3,970 level, in that case could jump again easily over 4,000 the technology index.

The BFM Assets Team.

WHERE ARE THE BULLS?

There is a very strange momentum in the sentiment. Against the fact that all US indices are on records or very close to that levels the retail investors are super pessimistic. That seems a paradox. Most of them don’t believe to their eyes, and don’t believe the market is really bullish. The AAII sentiment survey issued last week and show the anxiety:

The Bulls vs. Bear ratio is far below the meridian of 39 – now it is only 29,63%. What happens normally at these days. Big rally, just take a look at the chart below. The top of the market always comes right after when the ratio is in a lower territory.

This can be a good short term contrarian indicator. Because this lack of optimism could push higher the market.

The BFM Assets Team.

WHAT’S WITH THE DRAMA HEADLINES?

Due to another slow summer Friday in the midst of a longer-term market uptrend, finally the Dow 30 ended the week in red territory and most of the articles and many folks say this is horrible and it is a warning sign of the big correction. No, I doubt that.

The Dow 30 closed the week with only 0.09% decline and just five of the 30 stocks in the industrials were in the green. Friday loss was mostly due to Visa, which is the most expensive stock in the Dow and gave a disappointing sales outlook, pulling the stock down 4.2%. The DJIA is still struggling with the 17,000 level.

But put this data in a bigger context. The SP500 started the year around 1,850 and is now 120 points higher or about 6.5% gain for the year. So any correction is only a healthy period of this rally. Basically and finally the S&P 500 didn’t end up with a weekly loss.

• S&P 500 +0.01% for the week 
• Dow -0.8% for the week
• Nasdaq +0.4% for the week

The markets are running in cycles, some days up and some days down that is not a magical, plus there are breakouts and breakdowns quite often. In this bullish sentiment we are more comfortable buying the breakouts than selling the breakdowns. In technical terms recently we see the breakout level at 17,095.

The BFM Assets Team.

NEW ALL TIME HIGH, BUT LOW BULLISH SENTIMENT

It sounds crazy, but it is the harsh reality. Thursday the S&P 500 was hitting an intraday record above 1,990 and closed at an all-time high for the 27th time this year at 1,988. But, the retail bullish sentiment dropped from 32.4% down to 29.6%. This is the lowest weekly reading of bullish sentiment since May 2014.

Normally, when the equity market is making rally and hit new records, you expect to see bullish sentiment rise. But this is not true recently. The investors with bad memories of the bear markets are concerned not to make the same mistakes again.

The investors still don’t want to believe their eyes and accept the fact that this market is a bullish market. On the contrary after all new highs they are expecting and waiting for some correction.

The bullish sentiment between the US retail investors is lower now than the bearish sentiment. That is pretty rare, mostly seen after severe correction. So the fear and anxiety is on the market, which is good for buyers.

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The BFM Assets Team.

TRYING TO OUTGUESS THE MARKET MOVES

This is a part of human nature to find answers for uncertain things. We always love to create ideologies why the market needs to go down or why it needs to go up. We don’t like the uncertainties in our life, so we hate this in trading too. I have predicted many times in my first period of trading career. But I don’t do that anymore. Why? Because it is not possible to predict the future, we are only guessing. As John Bogle’s old runner colleague said “NOBODY KNOWS NOTHING.”

Most of traders are looking for gurus who always tell the truth. They can’t accept the fact Mr. Market is more complex than could be ever forecasted because it is a dynamic random system always with at least two scenarios.

We use different forecasting systems, fundamental analysis or technical analysis with hundreds of indicators, but I have never met a person who had 100% hit rate. Nobody knows what holds the future. All type of analysis only tell us what happened in the past or what happens now, but none of them is not able to show the future. As George Soros once said “It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong.” That is the point. I never care about I am right or wrong. What I only care about is the size of the profit or the loss.

To place a good investing decision we have to accept the uncertainty of markets. If we are honest about it we won’t fight with the market anymore. I found a great statistics that there are no gurus. Mark Hulbert of the Hulbert Financial Digest analyzed the top-performing newsletters from 1986 to 2010. They found that they underperformed the SP500 by 2.6%. But still today many investors use them and convinced they have found the way to reduce the uncertainty of Mr. Market. They create a fake sense of certainty.

There is another problem with the gurus, signals and recommendations. You are able to avoid the responsibility for your decisions. You are pushing away that. If you make money you say ok that is great I knew that. But if you lose you will say the bastard guru is made a bad job. So it is not your mistake but the guru, signal or newsletter’s mistake. This is typical approach by human investors.

Accept the fact that Mr. Market is more complex than anybody can predict and realize that no one knows exactly what market will do. As Warren Buffet said “I don’t know what the market does next week or next month or next year. What I only know what will do in 20 or 30 years.”

The BFM Assets Team.

SHORT-TERM GAIN AND LONG-TERM PAIN

As far as I see, this is the new mantra between investors. They are still arguing with the tape, arguing with the harsh fact that this market is overwhelmingly bullish. Now this new phrase suggests, they accepted okay the market is gaining, but shortly comes the pain. In this interpretation in short-term the perspectives are good, but in longer term the picture is more dangerous.

This is the echo around Wall Street now. Why and how? What we only know the market is bullish today and all of us are only guessing about the tomorrow. So, I am super okay if I know and understand the today movements of the market, the clashes of bears and bulls. Honestly 90% of the investors don’t really know what is happening now.

There is no doubt that US markets are bullish:

• DJIA is over 17,000 
• S&P500 is flirting with 2,000. 
• Closed the S&P500 within a striking distance from its record closing level, reached on July 3 
• The S&P 500SPX achieved an intraday record above 1986

Yesterday closing:

• Dow +0.4% 
• Nasdaq +0.7% 
• Russell 2000 +0.8% 

That is so funny that the market always needs some anxiety and fear. The new scares are the followings earning plunges or FED tightening policy. But against all kinds of anxieties just take a look at the DJIA chart and easily you can pick up the market is in a bullish momentum without any doubt.

The BFM Assets Team.

SOME ARGUMENTS WHY THIS IS A BULL MARKET

Yesterday US benchmark indices stopped a bit and didn’t keep heading further north. The market modestly weakened about the anxiety of Ukraine issues and closed in the red territory.

• Dow - 0.28%
• Nasdaq - 0.16%
• S&P 500 - 0.21%

So this is a good time to bring some more fundamental and technical arguments why we think the market is in a bullish track and why it is not a bubble at all.

Some key facts:

• Investors remain pessimistic and there is no any sign of euphoria at all
• Vast majority of investors are still uncertain to start to buy or not. So there is a huge buying force potential offside
• US pension funds have their lowest equity allocations in more than 30 years
• Wall Street strategists still continue to underweight equities in their recommendations and offerings
• S&P 500® high beta stocks (100 stocks out of the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months by Standard & Poor's) are selling at their cheapest relative valuations in nearly 30 years.
• There is no enthusiasm on the corporate side neither

The general uncertainty is great. Without this there is no opportunity. This general disappointment and pessimism about this “most heated bullish rally” strengthen further our bullish attitude. We are at the phase of pessimism in the optimism/pessimism cycle and we do believe it still takes time for the majority to realize the market is really bullish.

The BFM Assets Team.