Weekly Market Assessment
Another year and another double digit gain for the market! For the third straight year, the market has logged double digit returns in what now looks to be a continuation of the secular bull market. 2014 was a year full of buying on all dips and making new all time highs. During the course of the year, 51 out of 52 weeks hit new highs! Sounds crazy when it is looked at in that perspective. Another milestone was met towards the end of the year when the DOW broke above and closed above 18,000 along with the S&P 500 making an ~12% return for the year! Crude oil lost more than 50% of its value, while the U.S. dollar gained over 12% and the 10 Year Treasury Bond lost ~100 basis points to close the year near 2%. At the beginning of 2014, the 10 Year Treasury Bond was at 3% and almost everyone believed that it was heading higher. In what looked like the beginning of the Federal Reserving tightening by rising interest rates to fend off inflation, the exact opposite occurred and yields dropped. Commodities fell and the dreaded word of deflation has recently entered into conversations. How could this be when we continue to see interest rates moving lower throughout the year? Did investors jump ahead of the market or is it just the consequences that come with monetary polices that influence the mechanics of how the market functions? Whatever it was, investors who positioned themselves for a rise in rates suffered a slow and steady beating while those that stuck their necks out in the equity markets were rewarded for their risk! The next question is of course, where do we go from here?!2015, is the year of the sheep. This year has strong historical patterns that would suggest a bigger biased to further upside! Typically in the past, the market has shown signs of bullish behavior the year before a presidential election. Coincidentally, years ending with the number 5 also have a history of ending up with only one slip up since 1885! Accompany this with low interest rates, an improved employment environment, increased corporate profits and low oil prices and the outlook remains bullish! Now when the overall consensus is bullish, the contrarian investor usually has the advantage as there is no one left to buy at higher prices. "The 'risk is gone myth' is one of the most dangerous sources of risk and a major contributor to any bubble. At the extreme of the pendulum's upswing, the belief that risk is low and that the investment in question is sure to produce profits intoxicates the herd and causes its members to forget caution, worry and fear of loss, and instead to obsess about the risk of missing opportunity," says Howard Marks. So again, we are left to roll the dice and take the risk to be either long or short. Every short these past years wishes they were long and every long wishes they were longer! Every obstacle that was thrown at the market this past year from geopolitical challenges, the ending of Quantitative Easing, Ebola, annexation of Crimea and invasion of Ukraine, economic issues in the European Union and the collapse in crude oil couldn't stop the market on its way to new highs! Will this year be less eventful? Doubt it. The market will be looking for reasons to correct and recharge to push on. Are we in a euphoric state in the market where things are just "too good"? Or is the aftermath of the in/famous Q.E. going to rear its ugly head and wipe-out those who have finally gotten back into the equity market? That is just the risk one has to take when thinking about investing. However, to do it prudently, one has to look at many factors and the fear of a black swan event could expose a wolf in sheep's clothing!
The Rant: Going Off on a Tangent with My 2 Cents
Nothing this week
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk: