No key support levels for the U.S. market have been broken, even short-term, and we remain in the market's favorable season.
Nevertheless, those following a strategy based on buying low and selling high would be wise to have plans in place to execute whatever is their exit strategy fairly quickly this year.
If global markets recover, and the U.S. bull market continues, investors need not execute those plans. However, it is usually too late to wait until a market is in the full throes of a significant decline to begin to think about how to handle it.
Even though the U.S. market is demonstrating impressive resilience, it has gone nowhere for three months. The rising tide of global market declines is raising the risk that it will not be able to endure against that tide much longer.
But it was the anecdotes about what investors were doing that were most disturbing.
The people featured in the article are making all the mistakes in the book: jumping in to the market again after a huge, multiyear run; buying individual stocks, a loser’s game for the vast majority of investors, and, worst of all, trading.
The most important take away from this report is that the long-term trend and momentum of the market remain deep in bullish territory. The markets have rallied off the February lows but are struggling to hit new highs as the financial and consumer discretionary sectors have failed to rally materially off their lows. Two areas of concern are the lack of expansion in new 52-week highs as the market nears its former highs as well as the fact intermediate-term indicators are at extreme overbought readings and suggests we should see some softness next week. My guess is that we have some choppy market action ahead before seeing new highs.
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The stock market continues to behave in an orderly way. Following the recent -6% peak to trough correction on the S&P 500 Index (SPY), it appears the worst of the pullback may be behind us for now following a sharp upside reversal late last week that has characterized so many bounces in the post crisis period. But just because the market looks like it is once again on the mend does not mean that all is well. Investors were notably rattled during what was otherwise a mild correction over the last few weeks for good reason, as significant structural imbalances continue to fester underneath the global economic surface. And the latest warning shot across the market bow has provided important lessons for what we should expect and how we might position if and when these mounting pressures finally boil over into crisis.
It promises to be an interesting year for the markets as we move through 2014. We are no longer in a phase where one can simply enjoy the ride higher in stocks, as volatility is likely to play a greater role in markets as the year progresses. Thus, investors will need to stay on guard for potential action if necessary in the event that what was once a warning shot finally evolves into a full blown engagement.
Why trade Futures vs. Stock or Options? Futures are…
The most important take away from this report is that the long-term trend and momentum of the market remain deep in bullish territory so talk of a bear market is highly premature, particularly given that spikes in new 52-week highs have been dominating spikes in new lows during declines. What we have is a corrective move in an ongoing bull market and we now have to decide when the bottom is in. Short-term indicators suggest the market rallies next week as we've hit levels associated with short-term lows, but a lack of fear in put-call data and a lack of strong buying suggests we may have a weak rally attempt into next week followed by a retest of the current lows to bring about more fear and anxiety associated with major bottoms.
Even a losing trade can stir emotions and a sense of power or satisfaction, especially when related to social proofing. If everyone in a person's social circle is losing money in the markets, losing money on a trade will allow that person to enter the conversation with her/his own story. When a person trades for excitement or social proofing reasons, it is likely that she/he is trading in a gambling style rather than in a methodical and tested way.
Trading in a methodical and systematic way is important in any odds-based scenario. Trading to win seems like the most obvious reason to trade. After all, why trade if you can't win? But there is a hidden detrimental flaw when it comes to this belief and trading. While making money is the desired overall result, trading to win can actually drive us further away from making money. If winning is our prime motivator, the following scenario is likely to play out:...
As of this writing, VXX currently has its holdings divided between the January (F4) and February (G4) 2014 VIX futures contracts. As the January contract nears expiration, the folks at iPath will have to replace it with the March contract (H4), and presumably at a higher price. That price premium will then decay back down toward where the spot VIX is as the contract nears expiration. So VXX shareholders are continuously being victimized by the "roll" to later expiration month contracts, with that ETN buying higher and then selling lower, and repeating. That explains why the VXX's long term "performance" has been so awful.
Looking back on 2013, many of the economic and political themes seemed familiar: a weak economy. Growing income inequality. Gridlock in Washington. Partisan wrangling over fiscal policy. But others, like the disastrous rollout of the Affordable Care Act HealthCare.gov website and the government shutdown, were new or at least revivals. Below are 10 charts to illustrate a depressing first year of President Obama’s second term:
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I have covered a lot of data and a lot of terms, many of them foreign to average investors. The charts in and of themselves don't seem so alarming. So what is the problem?
The velocity of money is a term of art. It is nothing more than GDP divided by the money supply. It is a proxy for how fast money turns over in the economy. You get your pay check and buy groceries, the grocer pays rent on the store, the landlord pays interest to the bank, the bank lends money to a borrower wanting to buy a new car.
The longer QE goes on, the more difficult it will be to find the right balance. I listened to Janet Yellen's testimony at her confirmation hearing. It did not inspire confidence. Her comments were consistent with an academic review through the "rear view" mirror rather than a look ahead in an economy where giddy investors are already paying billions and billions for unprofitable companies whose future profitability is by no means assured; where multiple offers are being made on real properties in some housing markets; and, where analyst upon analyst is calling for the Dow Jones and Standard & Poor indices to carry on to ever higher levels at expanded earnings multiples calling the current market "inexpensive".