BUY OR SELL THE STOCKS?

Last week US and European markets were under severe sell-off and technically showed a big red flag that Russell 2000’s 50-day moving average crossed below its 200-day moving average this week, a development known as a “death cross.” They are warning for a great correction? This “death cross” pattern means bad for stock markets. The volatility is huge and shows the fear of investors. Looks like this the “death cross” chart pattern.

The last couple of day’s correction increased the fear in investors, but the 3-4% drop is not a real correction. That is only the noise of the market and normal behaviour of a bull market too. The real correction starts from 6-7%. The Russell 2000 index has dropped 3.5% during the last week, more than double the S&P 500’s 1.4%. Everybody is concerned about the Russell because is down 7.4% from its 52-week high in March while S&P 500 and other major benchmarks which still near to record territory.

Technically the good news is that in the short view there is no resistance on S&P 500 or in DJIA. The bullish trend is still intact and has not been violated so the long side is the only side recently and close out all the concerns and fears and ignore the “death cross” concerns.

The BFM Assets Team.

BUY THE DIPS?

I have read in many forums "just buy the dips now," buy the corrections because it has been working fine in the last 5 years. I am not fully convinced that there is any general rule on the market which works forever, including this too. Buy the dips has been good for years, but one day it won’t work anymore for sure. I would ask the dip buyers that, does it mean it will work that way for the next 20 years?

If you are trading from the past data and chart history and you typically drive by looking out your rear view mirror, the answer is yes. But Mr. Market has much more tricks what we can imagine and always does which creates the biggest pain.

Buy the dips sounds easy, but I am suspicious not all the guys have done in the last years as they say. I guess they really did panic and were scared to buy at big sell offs like at those severe sell-offs:

Each year we experienced double digit corrections – the exception is 2013. Normally, more than 10% drop creates huge pessimism and I am sure those very optimistic guys were so scared and pessimistic and weren’t brave enough to pull the trigger and add more to the losing trades. Retrospectively sounds easy, but at those days was really hard, only few people could make it.

All in all buy the dips strategy working many times, especially in bullish market, but don’t forget as an old saying on Wall Street is, "They don't ring a bell when a bear market starts."

The BFM Assets Team.

DEAD CAT HAS NOT REBOUNCED

Yesterday the massacre continued after one day rebounce. Thursday was the capitulation of the bulls and US indices saw their biggest one-day drop since July 31. An old saying is that stocks goes up like escalator and goes down as an elevator was absolutely true yesterday. Since long time we haven't seen a day like this. The dead cat did only short rebound, but the real rally hasn’t come yesterday.

• DJIA – 1.54%
• SP500 -1.62%
• Nasdaq -1.94%

It is not clear what caused this massive sell off. There was no single reason that should warrant such a selloff, making the drop more difficult to explain. Traders and investors blamed high stock prices, the uncertain global economy and international conflicts around the globe. Investors remain concerned about the risk of recession in Europe and about the possibility that Chinese growth may be slower. They worry about Russia and about the new U.S. involvement in the Middle East, the strengthening dollar, which makes U.S. exports more expensive and foreign income to U.S. multinationals less valuable. The dollar Thursday was at its highest level against the euro since November 2012.

Technically the picture hasn’t changed in the last couple of days. The 17.220 is still the key resistance level on DJIA, until is not taken by the index we shouldn’t do anything, just wait and watch.

The BFM Assets Team.

DOES DEAD CROSS MEAN ANYTHING?

Yesterday finally US and European markets rallied, but technician showed a big red flag that Russell 200’s 50-day moving average crossed below its 200-day moving average this week, a development known as a “death cross”. They are warning for a great correction. Against this “death cross” pattern Wednesday especially DJIA was recording its best gain in more than 5 weeks. The benchmark indices broke the three losing streak pattern. Looks like this the “death cross.”

• DJIA +0.9%
• S&P 500 +0.8%
• Nasdaq +1%
• Russell +0.9%

The last couple of day’s correction increased the fear in investors, but the 2-3% drop is not a real correction. That is only a noise of the market and normal movement of the market. The correction starts from 6-7%. The Russell 2000 index has dropped 3.5% during the market’s last 3 days losing streak, more than double the S&P 500’s 1.4%. Everybody is concerned about the Russell because is down 7.4% from its 52-weeks high in March. S&P 500 and other major benchmarks which still near to record territory.

Technically the good news is that in the short view there is no resistance on S&P 500 or in DJIA. The bullish trend is still intact and has not been violated so the long side is the only side recently and close out all the concerns and fears and ignore the “death cross” concerns.

The BFM Assets Team.

DJIA CORRECTION

The Dow fell for a second straight day and all US indices closed in red; the DJIA 116 points: - 0.7%, to 17055. The S&P 500 index shed 11.52 points, or 0.6%, to 1982, S&P 500 down 1.4% in two sessions. Shares fell on the heels of a selloff in Europe.

Technically we are far from the top and we have to wait for some rebouncing confirmation on the buying side. Our key resistance level is still the previous top at 17,300.

The BFM Assets Team.

THE SCOTTISH “NO”

FTSE 100 gained already yesterday and today strengths further on the “no” vote majority in Scotland. The result from the referendum shows 55% of Scottish residents voted to reject independence for their country.

The London benchmark index opened with gap this morning around 0,5%. Now it is around 0,7% plus. We have been and we are very optimistic in the following weeks about UK index. We built up quite huge postions in the last two weeks and we are expecting more and more gain further.

In the big picture the FTSE is still lagging compared with other European indices and specially compared with US benchmarks. In September the consolidation was permanent in FTSE, I suppose it was due to this recent referendum which used to be a huge concern for investors. Now it has gone, so the optimism and buying momentum might come back and if it close above the 6,900 historical high level easily could come up to 7,000-7,200 territory.

The BFM Assets Team.

YES OR NO?

Today Scots go to the polls to vote on the future of their country. Voters in Scotland will be presented with a simple yes & no question: Do you agree that Scotland should be an independent country?

This is the question the people of Scotland will be asked on Thursday as the country holds a referendum that could ultimately set in motion the breakup of the United Kingdom as it exists today. More than 4.2 million voters have registered the largest electorate ever in Scotland. The vote for independence would mean Scotland, with its population of about 5.3 million, splits from the rest of the United Kingdom. Polls will be open from 7 a.m. until 10 p.m. local time. Results are expected to come in overnight into Friday morning local time.

Why is that significant to the market? It really effects on the UK economy and stock markets, and further on other separatism movements in Europe like the Catalan one.

This new fear is temporary only and affect shortly for European indices. My bet is nothing special will happen whether the result is yes or no. Mr. Market will do what it wants.

The question mark over Scotland's future is already having an impact on domestic and international business. Some worry that the breakup of the United Kingdom could undermine London's standing as an international financial capital. Last month, 130 business leaders published an open letter in which they warned of the impact of uncertainty over issues including currency, regulation, tax, pensions, EU membership and support for Scottish exports. A day later, more than 200 other business leaders signed an open letter backing an independent Scotland.

Let’s see today the movements of the FTSE:

The BFM Assets Team.