ONE BAD AND ONE GOOD NEWS

The bad one is the January-barometer effect. If the market closes in red January the history says that is not a good sign for the year. In 2015 the S&P 500 fell 3.1% this January. So we have to start worry? Really predicts its performance for the rest of the year? I am a bit sceptical, this January barometer historically proven is not more efficient than coin-flipping. Just take a look for last year when Dow plunged 3.6% and finally the year of 2014 was really nice.

The good news is that many investors think the market has been for 6 years bullish so it needs to come a bearish period this year. But the fact is that since 1920 the DJIA delivered five times a longer rally than 6 years. So, there is still a room for more gains.

The real good news is that if the market is in 6 years gain in raw there is a 70% chance to get higher in the 7th year further. Which is pretty fair and much better than coin-flipping or roulette 50% or less chances.

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The BFM Assets Team.

DO YOU REMEMBER? YOU WERE SCARED ABOUT GREECE.

And, what has happened? Absolutely nothing. Nobody cared about the leftist party’s success in Greece. The European markets are gained further on the news of the anti-austerity Syriza won the Sunday elections. Mr. Market ignored totally this event and discounted fully. The funny thing was that the US indices suffered more than the European ones. US stocks ended Monday’s choppy trading session with small gains. Most of the people don’t get it why the Greek election should influence US market more and the Greek result had zero influence on European markets DAX +1,7%, IBEX +1,5.

The global markets were relatively calm and all indices in US closed marginally higher. After falling more than 100 points, the DJIA gained 6 points to 17,678.

• DJIA +0.03% 
• SP500 +0.26% 
• Nasdaq +0.29% 

Technically the S&P500 is still in the range since 21st of January of 2.060 and 2.030. To find a good long set-up you should wait for the breakout of 2.060, if that resistance is taken you can start buying the index.

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The BFM Assets Team.

DOGS OF THE DOW IN 2015

In theory, you should buy the 10 Dogs of the Dow each year and replace them with new Dogs every year. The more than twenty years old investment strategy says you have to buy the worst performing stock in the previous year out of Dow Jones index. Most probably you will beat and overperform the benchmark index itself. These stocks usually tend to beat the market because of the higher dividend and the contrarian approach. This system calculates with the madness of the crowd and tries to behave against that.

Since 2000 in nine years the "Dogs" have beaten the Dow index by an average of about 1%. In 2014, the DJIA delivered 11% total return, while the Dogs are up 12 percent.

The current Dogs for 2015:

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The BFM Assets Team.

HITLER AND THE SWISS FRANC

Super hilarious video. Must see!

https://www.youtube.com/watch?v=AFsnqmupCIc

"...I wish to remain alone with the account manager, the risk manager, the fundamental analyst, and the technical analyst... we were using only 20x leverage and you tell me it's all gone!!"

"I will never trust a central banker again in my life"

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The BFM Assets Team.

VOLATILITY IS A DOUBLE-EDGED SWORD

Thursday everything was about the ECB’s new 60 billion euro new large-scale bond purchasing program and previously the announcement the Dow was falling 71 points and later was jumping 286 points and finally rose 1,5%. The index rallied in four consecutive days. The index’s volatility was extreme again yesterday. So far, the DJIA has seen a trading range of 200 points or more every day in 2015. We have to live with that as a new pattern.

The volatility is a healthy thing for the markets. Some days are lower and for some periods are bigger. Most of the investors are freaked out by the volatility and they usually lose money, they see only the risk of this pattern. The volatile market doesn’t come from the devil. The volatility on the other hand is a great opportunity to make money because the volatility creates more buying options and create great bargain hunting deals.

We are expecting more roller-coaster moves in US indices further in the following weeks, this might be staying with us till the FED starts to increase the interest rate, which could be possibly this spring. All in all, the market is in a very-very bullish momentum, yesterday the S&P 500 closed its highest level in 2015 and the European indices are at their historical records or close to them. So, our advice is to buy the dips with small portion of positions, that is the only working method in this kind of volatile market conditions.

Here is the trading range of Dow yesterday (17.480-17.840)

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The BFM Assets Team.

EUROPE AND US MARKETS ARE IN DIVERGENCE

The US indices gained for third day for true and delivered their longest win streak in 2015, but they are still in negative territory. European indices closed sharply higher Wednesday again. Europe performing much better in 2015 than US markets.

The Stoxx Europe 600 ended 0.6% up and hit seven-year high. Dax closed near its all-time high. France’s CAC 40 and London’s FTSE 100 both gained added 0.9% and 1.6%.

The U.S. stock markets ended Wednesday’s choppy trading day with modest gains, extending its winning streak to three sessions.

• DJIA +0,22%
• SP500 +0,47%
• Nasdaq 0,27%

But in the bigger picture seems the difference in the sentiment and the bullish momentum between the two continents. Take a look at the chart below, it tells more than 1000 words how strongly has been lagging the Dow Jones behind the DAX.

2015 Gauges:

• DAX: +5,19%
• DJIA: -1,51%

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The BFM Assets Team.

WHAT IS THE PIVOTAL POINT?

Yesterday I have received some questions and comments about the yesterday blog http://www.bfmassets.com/2015/01/break-out.html what is it exactly the pivotal point and how to use that pattern.

Good question since this is a key tool for trading and almost unknown by the traders, but frankly without this is hard trade the falling markets. The funny thing is its unpopularity between traders, while that pivotal point theory is more than 90 years old and invented by Jesse Livermore by the greatest investor ever. http://en.wikipedia.org/wiki/Jesse_Lauriston_Livermore He wrote about the pivotal point in his book of "How to trade in stocks", 1940, http://www.r-5.org/files/books/trading/speculation/Jesse_Livermore-How_To_Trade_In_Stocks_%281940_original%29-EN.pdf

To understand it, it is practical and easier if I take some current examples. Recently the stock markets are in bullish and long trend, but there are many periods were we experienced some severe corrections like in last October the S&P 500 dropped closely 10% and in the last 10 days the index fell roughly 4%. In these tumbling periods we never know where the lowest point is, but with the pivotal point strategy we could indicate the first point when we have to start to buy the dips. The plain „buy the dip” strategy is too risky and not objective at all, we have to wait for the clear break out signs. Livermore stated if you are greedy and open positions too early without any pivotal point you will lose and burn out shortly, but if you have patience and wait for the pivotal point you are going to survive.

Here are two examples from the last couple of weeks:

• Between 20th September and 17th October 2014 was a huge correction in the DAX. We were just watching and waiting for the pivotal point, for the first break-out. We didn’t want to catch the falling knife. We first started to buy on 17th of October at the second red arrow because that top closed above the previous top – which is a pivotal point. The price clearly closed above the previous top. 
• Recently – precisely today we have another pivotal point in DAX. The yesterday closing price did draw a pivotal point at 9.820 because it has closed above the previous top.

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The BFM Assets Team.