SUMMER 2014

Just two trading days left from this summer. Yesterday the US and Europen markets stepped back a bit. The S&P 500 finished its three-day winning streak. The market at the early session plunged severely due to the never ending Russian – Ukranian turmoil. Kiev said the wanna-be-cowboy Putin sent regular troops to Eastern Ukraine. Mr. Market didn’t respect that news and turned red. The volume again was extremely low right before the Labor Day weekend in US the trading could stay easily boring further today. All in all, monthly basis all indices showing nice gains in August.

• S&P 500:  - 0,17% (1,997)
• DJIA:         - 0,25%
• NASDAQ: - 0,26%

 

Yes, unfortunately the summer is over, the US Labor Day bells the end of it. It was short as always, wasn’t it? But the market wasn’t really vanilla this summer this season was different. In terms of trading there have been some remarkable things. We have had some serious geopolitical tensions, so it wasn’t a really boring holiday season.

We collected and specified below some special and unique events below, which are not only affected on the summer season, but could effect on the fall as well.

• Ukraine invasion or no invasion question. This has been dominated the headlines and almost each day with us, but surprisingly there is no real impact on the markets. Even the invasion headlines doesn’t make this market go down. The markets don't care about that conflict in longer term. In the old days, war would always lift the market.
• Geopolitical turmoils around the globe – Ukraine, Gaza strip, Ebola…etc.
• Financial risks occurred – Russian embargo effects on German economy, ECB more and more serious about some QE, US GDP growth is very impressive, Euro region GDP is disappointing.
• Despite the holiday season and the low volumes the S&P 500 and Nasdaq hit new historical highs.
• S&P 500 hit the 2,000 milestone level the first time in the history.
• Trading volumes were extremely low especially in August.

Which risk and fear stay with us in the rest of the year, we don’t know yet. I bet many of them stick with us and some new are going to occur. That is the general rule of markets without fears Mr. Market can’t go new records.

The BFM Assets Team.

SHOULD I BUY OR SHOULD I WAIT? THE GOOD TIMING

After this August furious rally, the one million dollar question of all investors comes up “Buy now or wait for a correction?”

Yesterday U.S. stock market finished flat. The S&P 500 stayed around 2,000, edged up 0.10%. Trading was the slowest for any full session this year. The question for vast majority of traders now would be “is this consolidation a bargain buying opportunity or not enough yet?” They want to pick up the lowest tick of a chart and looking for a perfect timing moment. Wrong, the timing the market is a fruitless effort. The perfect market timer doesn’t and can’t exist. There is no crystal ball or a magic formula that allows for perfect market timing.

I am neither a perfect timer Nostradamus. I do believe that looking for a perfect market set-up equals with Astrology. If you are looking for a perfect buying opportunity usually two typical things happen.

Firstly, you are just watching and follow with your eyes the rally and crying each day why are you out. Secondly, everybody is in already around you and you are frustrated that each day you are loosening if you are out, so wait and wait for a correction which doesn’t come and finally you will buy at the top. History tells us how this attitude ends always, in tears.

As Peter Lynch stated about market timing is sobering: “People spend all this time trying to figure out "what time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, and your return would have been 11.7 compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6. That's the only difference between the high of the year and the low of the year.”

Number of folks would imagine that only catching the lows would create a huge performance advantage versus the random timers. I bet many of you assumed buying only at the highs would create losses, but statistically proven it is not true in longer term. Surprising? Yes, it is.

All in all, don’t waste your time and energy looking for the best timing and perfect opportunity, just buy it with a reduced position size and wait for the reaction of Mr. Market. If the market is in your favour you can add more any time, it is a free world.

The BFM Assets Team.

LET'S GET THE PARTY STARTED – SP 500 CLOSED ABOVE 2,000

Never comes the perfect set-up point when the market like now is in full steam ahead. Almost without any consolidation and correction all US and European indices have been gaining day by day and all benchmarks are moving forward. I wouldn’t say the party just got started, but there is still room for more gains in indexes.

Tuesday ended stock markets higher again. S&P 500 closed first-ever above the 2,000 milestone level and touched the intraday record at 2,005. Finished 30th record close this year and gained YTD 8.2%. DJIA touched intraday record at 17,106, but closed lower just about 16 points below all-time high. Nasdaq had highest close since March 31, 2000 again.

• DJIA: +0,17%
• NASDAQ: +0,29%
• S&P 500: +0,11%
• RUSSELL: +0,85%

The Russell has been leading the gains this month, the best performer between US indices. We have built huge positions in Russell in July and have been overpositioned in that index.

The S&P 500 hits a new high, but what is the outlook? In terms of technical side hard to forecast because the chart is in a white and uncovered territory. What we can do in these situations just hold the long positions until the bullish trend and momentum are not violated. When does it come? I don’t have a faintest idea.

The index easily could back test the 1,993 key support level. Don’t be scared if that happens that won’t be a disaster, the bullish trend is still intact. Normally we don’t forecast, but now there is a temptation. We are expecting the S&P 500 is going to finish the year at least at 2,050. Why are we optimistic? Just look around in the world and you will realize US seems to be the only safe place right now geopolitically and the investors love the complacency. And, the retail market is still dead the lack of enchantment with the Wall Street could bring more gains ahead as many small investors come forward.

The BFM Assets Team.

OUR BIGGEST ENEMY IN THE TRADING

Yes, Ourselves! Maybe some of you are aware of this, but during the trading we tend to forget that rule and our biggest bias is our mental behaviour and mental weakness. This is the real enemy not the broker houses or the other traders and investors. You really want to know what your biggest mistakes are – just take a close look at your portfolio – and ask help from Advocatus Diaboli. If you spend few days or weeks to analyse precisely your track records, you can find dozens of mistakes which need to be fixed to be better investor.

I suppose you will find the following most common mistakes:

• You buy at highs and sell the lows
• Super active trading style. You trade more than it would be necessary.
• You are reshuffling your portfolio more often and change the winners to the losers because they seem cheap. 
• You do not find any rational reason to open a position just opened because you heard something on TV or from one of your friends. 
• If you have profit on any position, you will cover as soon as possible and too early.

All these mistakes listed above help you destroy your performance. Maybe you are not a real loser – you can say –, but if you make better this list, your return will increase certainly. And why are we doing these things? Because we are irrational, folks. An average investor does not understand those points because it is against the human behaviour, but you can do it better, just start to try it.

The BFM Assets Team.

S&P500 AT 2,000 POINTS!!!

Believe or not, despite all concerns and fears the S&P500 hit this morning at future market the 2,000 key level. Do you still have any doubt there is a bullish market out there?

Friday, despite the uprising news of Ukranian convoy never ending story the European markets are plunged seriously in the morning. US benchmark ignored all the Russian - Ukranian news. Basically was quite a slow day and mostly closed flat the indices in Wall Street. After Thursday record close of S&P500 the Friday numbers were the followings:

• S&P 500 -0,20%
• DJIA -0,22%, closed above 17,000
• Nasdaq +0,14% still keeping the hot streak rally

The three benchmark indices achieved their third weekly gain in a row. The S&P 500 and Nasdaq both advanced by 1.7% for the week, while the Dow rose by 2%.

In the afternoon the Yellen and Draghi speeches first pushed lower all the US indices, but an hour later they recovered and closed around break even, which is not bad if you take consider the turmoils around the globe.

What is the scenario for this week? We are expecting more gain in indexes specially Europeans in DAX and CAC40.

The BFM Assets Team.

ALL TIME HIGHS

U.S. stocks advanced again Thursday and continued the hot streak period. The S&P500 made its fourth straight daily gain and closed at a record high. Gained +0,29% and finished at 1,992, topping its July 24 finish to set its 28th record close in 2014. The four-day winning streak is the longest in the last two months.

The Dow Jones rose +0,36% to 17,039, pushing back above the 17,000 level to log its highest close since July 24. The index is still off around 0.6% from its all-time closing high.

The Nasdaq rose +0,12% to 4,532 ending at its highest level since March 31, 2000.

All in all the markets are on record levels. Most of the investors are scary enough about these levels, but is it really abnormal this gaining? An average investor starts to be scared when he or she hears the record word. They remember well the all-time highs in 2000 and 2007 and both followed by 50% declines. In their mind the record is the one of the scariest phrase.

But records and new highs are perfectly good signs. Those show the strength of the bulls. Since 1950 there have been more than 1,100 all-time highs closings in the S&P. That is 6.8% of all trading days or roughly 1 out of every 15 days. 70% of all-time highs occurred not surprisingly in the bullish rallies during the 50s, 60s and 90s decades.

How long stays the rally with us. Nobody knows, but just try to follow the momentum and don’t be scared about the higher and higher prices. The stocks don’t have to crash merely because they hit all-time highs.

The BFM Assets Team.

BAD NEWS ARE GOOD NEWS MANTRA

The paradox is resonating on the bad macro news last week from Europe. Europe’s GDP failed to grow generally, the powerhouse of European economy Germany is in negative territory too. The annual growth rate is only one-third of US performance. The real poor performance came out from Italy the third biggest economy in Euro zone.

The immediate market reaction was the lower yields of German bunds and breaking through the 1% level. Equity market has been rallying since that day massively in Europe. Why? The market’s expectation is that ECB will have to begin the monetary stimulus, which will create huge liquidity for the European stock markets. The poor economic performance pushes ECB further to do more and the investors understand that phenomenon. So the paradox is imminent worse for the economy better for the stocks.

Bad news from Main Street means good news for Wall Street recently. The media discuss about that this paradox as a new feature, but it is not really true. This pattern is not really new that is a long historical symptom when market wants to go one direction. Those days Mr. Market has a selective hearing, ignore the news which against his direction. This phenomenon already mentioned by Dow and Livermore a century back. The market only absorb those news which help moving its direction and could excelarate the right momentum.

The BFM Assets Team.