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@theMarket: Markets Need a Break

By Bill Schmick
iBerkshires Columnist

The stock market has climbed 10 percent in the last three weeks from its February lows. That is a substantial gain, over a year's worth of historical performance for the S&P 500 index. And as such, it's time for a break.

That doesn't mean a sell-off will happen, but it never hurts to prepare one's mind set for a bout of profit-taking. The worst that can happen is that I'm wrong. If it doesn't occur, you can remain relieved (and possibly pleasantly surprised) that your portfolio is recovering the losses it incurred over the first two months of the year.

About the only investors that would be disgruntled by this turn of events, would be those who disregarded my advice and sold in a panic last month. For those in that category, I'm sure you are praying that markets do correct, so that you can get back in.

You may have noticed that while I expect a pullback, I'm not advising you to sell. That's because I don't see anything more than a small decline from, say, the 2,000 level to 1,940 or so on the S&P 500 Index. That's pocket change.

The reason I am hoping for a pause here is that, in the short-term, the markets are overbought and extended. They need to consolidate in order to climb higher. Tentatively, the next upside target on the S&P is between 2,050 and 2,100; if we do achieve that, than we may actually see the markets turn positive by the end of this month.  Wouldn't that be something?

Of course, the rebound in oil has much to do with the gains in the market. The two are still bound together at the hip. My expectations that the agreement between the Saudis and Russians to freeze production would at least put a floor under oil proved accurate. It has also triggered a "short-squeeze" among global traders. A short squeeze occurs when short sellers, in this case those who correctly predicted and profited from the oil price decline over the last year by selling oil short, cover their positions and in the process bid up the price of this commodity.

The recent economic data is also contributing to the more positive mood on Wall Street.

This week's non-farm payroll number saw a jump in employment to 242,000 jobs last month versus 190,000 expected. Economic statistics across the board appear to be improving, which has put a dent in the bear's recession case. For those who follow my columns, that should come as no surprise. I do not see a recession and have discounted this concern repeatedly.

But it has been politics that has mesmerized the Street this week. We had a sizable rally on Monday, in anticipation of the Super Tuesday results. I mentioned last week that a clearer picture of who would be the front runners in both parties would reduce uncertainty and rally markets. Hillary Clinton appears to be the "anointed one" among Democrats, while the Republicans are pulling out all the stops to destroy Trump's momentum.

The travesty of the latest GOP debate is not worth a comment. Thursday's televised anti-Trump speech by Mitt Romney, the ghost of elections past, was just as pitiful. This obvious GOP/Wall Street effort to sink Trump's potential presidential nomination could backfire badly.

If primary voters perceive the establishment is ganging up on their hero there could be an even greater rush into Trump's corner. It appears the Republican Party is dead-set on blowing itself up and giving the election to the Democrats. So be it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Odds High That markets Will Continue to Climb

By Bill Schmick
iBerkshires Columnist

The S&P 500 Index broke through an important technical level this week. It is an encouraging sign and could mean that over the next few days that index could move even higher.

There are all sorts of technical levels that traders study. In the intermediate term, they usually look at the 50-day moving average. For the first time since the beginning of the year, we have broken up and through that level at 1,954 on the S&P. For those less inclined to worry about the charts, all you need to know is that traders are becoming bullish.

As I suggested in my last column, it was a week where markets first consolidated, and then climbed higher, supported by an oil price that refused to drop below $30 a barrel. It appears that OPEC and non-OPEC members have agreed to meet in March. Investors are hoping that a deal to freeze oil production will ultimately morph into an agreement to cut production. This is despite Saudi protests that there is no plan to cut production in the works. I guess hope springs eternal in the energy patch.

At the same time, investors are also hoping that this weekend's meeting of the G20 in Shanghai may result in a plan to spur global growth. At least that is what both the Organization of Economic Co-operation and Development and the International Monetary Fund are hoping to accomplish. Whether their call for "bold" action by the G20 will result in anything more than statements about working together, etc., etc., are doubtful.

Economic data this week were better than expected with GDP coming in at 1 percent over the last quarter (0.7 percent expected) while personal income (0.5 percent) and spending (0.5 percent) were also higher than estimates. These numbers fly in the face of those worrying that the country is falling into a recession.

Does that mean we are destined to go straight up from here and regain all the year's losses? Well, not quite yet. It is true that as of today the S&P 500 Index is only down 5 percent for the year. That's is an improvement from two weeks ago for sure. Still, we face a great deal of uncertainity even now.

Oil is still a wild card, as is this year's presidential elections. Super Tuesday ( March 1), is when 12 states hold primaries. In all, 595 Republican delegates — about 25 percent of the total number — are at stake. Republicans need 1,237 delegates to win the party's nomination.

Democrats need 2,383 with 1,004 Democrat delegates up for grabs next week.

The outcome may be an important boost for the markets, if there are clear winners in both parties. That would remove some of the uncertainty plaguing investors, and certainty is always preferable to the markets. We could possibly see a relief rally as a result that could take us up to the 2,000 level on the S&P 500 Index. At that point, things get trickier, and what happens after that is still uncertain.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Stocks at Bottom of Trading Range

By Bill Schmick
iBerkshires Columnist

This week was a little more promising. At least it was better than going down almost every day, as we did last month. Is this a pause or can we expect something more?

Something more is my bet, but whether it is up or down largely depends on the direction of oil. I did notice, however, that there were days this week that the oil price was not in lockstep with the markets. There was even talk that stocks and energy prices might decouple in the weeks ahead. Whether that is wishful thinking or a possibility will take more than a day or two of evidence.

I have insisted that no one knows where the bottom is in oil. Yet, a consensus seems to be forming that $30 a barrel, (give or take a few dollars), is where traders are willing to take a punt and buy energy. That may be true and I hope it is because that would mean the downside for stocks are limited. I still expect the S&P 500 Index to re-test its low of January. That would set us up for a nice rebound into March, but so far it has not happened. Instead, it appears we have established another trading range between S&P 1,875 and 1,920. We are close to the low end of that range right now.

Investing is a game of patience. Most of us do not excel when it comes to practicing that virtue. We want the pain to go away now. It is most tempting to just get out, but the truth is that the pain is simply replaced by a high level of emotional stress. You feel an increasing level of anxiousness as you worry about when to put your money back in the markets.

In the meantime, the daily "noise" continues. There is an increasing chorus of "recessionists," who worry that the economy is rolling over and it's all the Fed's fault. The January jobs report today did nothing to dispel that gloom. Nonfarm payrolls increased by 151,000, well below expectations of  190,000 new jobs gained. The unemployment rate did drop however to 4.9 percent.

Recall that I have been closely watching the rate of increase in wages. It is an important inflation variable for the Fed in deciding when and how much to raise interest rates. Average hourly earnings increased by 12 cents or 0.05 percent. That leaves the year-on-year wage gains rate at 2.5 percent, still far below the average. I doubt the Fed will hike rates until that number goes appreciatively higher.

Investors, however, are in an irrational state of mind where bad news is bad news and good news is also bad news. And so the disappointing jobs data forced markets lower. You would think that if traders were really worried that more interest rate hikes would hurt the economy, than weak employment data should have been good for the market. It is just another instance of a technical driven market.

One thing that I will be watching this weekend is China's expected announcement of their foreign exchange reserves. Supposedly, China's currency, the yuan, has seen more than $1 trillion in outflows since summer 2014. Chinese investors, worried about their economy, have been fleeing the yuan. They have been buying other currencies, especially the dollar, which they believe is a safer haven for their money. As a result, the dollar has strengthened and that's bad for our exports and the companies that sell them.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

@theMarket: Stocks Rebound

By Bill Schmick
iBerkshires Columnist

It had to happen at some point. The averages declined almost every day for three weeks in a row, so a relief rally should be expected. The question is will it continue?

Unfortunately, that depends on the price level of oil. The bounce in stock prices that began on Wednesday was directly related to the bounce in oil. Oil has gained over 10 percent in just two days. Traders believe we still have not seen a bottom however. No one knows when and at what price oil will finally bottom. Until it does, stocks will be held hostage to the energy market.

No one knows when and at what price oil will bottom. Until it does, stocks will be held hostage to the energy market.

In the meantime, everyone has a theory for why the global markets have had such a tumultuous three weeks of declines. Some are saying that the markets are predicting a future event, most likely a global recession. And that it is simply not showing up yet in the economic data. The problem I have with that line of thinking is that the stock market has not been an accurate indicator of recessions (predicting the last nine out of five recessions as an example).

China is another worry. Investors fear that the Chinese government will continue to devalue their currency, the Yuan, causing a currency war while somehow slowing the growth of their economy even further. No question that the Chinese economy has slowed and is presently growing at "only" 6.8 percent, but from a much larger base.

Then there are the Fed heads who are blaming the decline on our Federal Reserve Bank, as if a quarter-point rise in the Fed Funds rate could remotely impact the strength of our economy let alone that of the global marketplace.

Since none of these arguments make the least bit of economic sense, in my opinion, I have to believe that what we are going through is a technical correction. As such, there is no use in trying to come up with the reason for this sell off.  Markets, on occasion, need to pull back to a level where buyers once again appear. At some price level investors will perceive that there is real value once again and then the correction will be over. Have we reached that level?

It's hard to say. I have written that we have been overdue for a 20 percent correction. The last one was in 2011. If we measure this pullback from the highs of last December, we have declined about 13 percent on the S&P 500 Index. On Wednesday, for a brief moment, that index touched 1812. That was eight points below the support I talked about in my last column. It rallied from that level and we are still climbing as of this writing.

However, neither the NASDAQ nor the Dow Jones has yet to hit their August/September lows. That can be taken two ways. Either there is more downside to come or the bulls will argue that the other averages have not confirmed the lows of the S&P 500 (a positive divergence). My opinion is that we most likely have more downside before all is said and done, but from what level?

That depends on oil as well as stocks. The S&P 500 Index should at least reclaim the 1,900 level, if not higher. After that, depending on the data, I am guessing we re-test the lows of this week before I can sound an all clear in both markets. I am guessing we re-test the lows of this week. Don't even consider selling anything at this level. This is a time to be buying not selling because I fully expect markets to recoup all of their losses in the months ahead.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

@theMarket: Nowhere Land

By Bill Schmick
iBerkshires Columnist

Most of the stock market went nowhere this year. With the exception of the NASDAQ, the rest of the market returned investors less than the average yield of a yearly CD.

It was a disappointing year, to put it mildly. Recall the months of tension as the markets gyrated between up 3 percent and down by about the same amount. Then August hit and the markets declined precipitously, with the Dow Jones Industrial Average collapsing 1,000 points in a matter of minutes. Sure, the markets recovered, but if you had tried to trade that downdraft, you would have lost even more money, because the markets turned on a dime in October with no warning and recouped all of its losses.

What's worse is that all the culprits that generated negative returns for stocks are still with us. The declining price of oil continues to ravage investors. You may wonder why declining energy prices should be such a negative for the stock market. Conventional wisdom says that if prices continue to decline, the chances of bankruptcies in the energy patch escalate and that is negative for stocks.

I may disagree, but at the same time you don't argue with the markets when they get obsessed over something. No matter how crazy or irrational, you have to go with the flow until the flow changes. Then there is investors' angst that the central bank will raise rates again and again despite the anemic 2.2 percent growth of the economy. If they do raise rates 3 or 4 times in 2016, investors fear that it will crater the economy.

Finally, global growth continues to be anemic with China's growth the main concern. As China's economy (the second largest in the world) struggles to find its footing, the country's demand for natural resources also slows. This has caused the price of all kinds of commodities to go into free fall. But we know all this.

As we look ahead, one more uncertainty will gradually increase in importance in 2016.

The U.S. presidential elections will become a larger influence on the market as November approaches. At this point, most investors have no idea what candidates will ultimately face off in the fall.

In a presidential election year, there is normally a down draft in the stock markets sometime before November. How deep the sell-off and how long it lasts depends on a great many variables. Not least of which is investor's perceptions of who will win and what they will do differently from the old administration. The more unorthodox or radical the political platforms of the candidates, the more concern (and volatility) will be generated in the stock markets.

So for this coming year, investors should expect more of the same: volatility, angst, crazy swings in commodity prices, daily interest rate predictions from the Fed Heads and volumes of meaningless noise from the financial media. The days when you could just sit back and clip coupons or just assume a steady climb in stocks are over. You need to manage your investments now or find someone who can, and by the way, have a Happy New Year.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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