This week the Federal Reserve Bank announced it would begin to taper in January by $10 billion a month.  Most investors expected the markets to drop on the news but the opposite occurred. Why?

One reason is that investors abhor uncertainty. The Fed's announcement this week that they plan in January to reduce their $85 billion a month bond purchases by $10 billion removed a major psychological barrier to the market's advance. Investors now have a game plan on how and when the Fed will reduce their monetary stimulus and can adjust accordingly.

I commend the Fed and outgoing Chairman Ben Bernanke. They handled what could have been a dicey situation adroitly. Bernanke, in his press conference after the FOMC meeting, managed to simultaneously reassure investors that interest rates would remain low, while focusing their attention on the growing strength of the economy. Since then the markets haven't looked back.

So does this week's event change my short-term attitude toward the stock market? I was expecting a decline in the averages. My first stop was the 50-day moving average. We hit that mark and bounced. Many of the indicators I watch are still pointing toward caution but others have turned positive again. I won’t fight the tape and will instead give the market the benefit of the doubt here.

Clearly, the Fed delivered the rally that Santa Claus couldn't. I would expect the market to remain volatile but still maintain its upward trajectory into the New Year and possibly beyond. Given that I had recommended that investors stay long the market, despite any short-term declines, no harm was done. We can all enjoy the next few weeks of upside, but I do apologize for any undue stress I may have caused readers by predicting an imminent decline.

Wall Street winds down beginning next week through the beginning of January. It is a time when low volume allows smaller trades to have a larger impact on prices and we should expect increased volatility.  Maybe we run up, maybe we come down, or maybe we just chop around, but without the big players the market behaves far less predictably. Once again, I advise clients to ignore any short-term moves.

I will mention that we are only weeks away from another stock market phenomenon called the "January effect." At year end (actually starting on the last day of December) through the fifth trading day of January small-cap stocks have tended to rise substantially. The effect is explained by the tendency of investors to first sell these stocks to create tax losses or raise cash for the holidays. This selling drives down prices far below their fundamental worth. Bargain hunters then move in and buy quickly driving up the prices and creating the January effect.

Unless you are an adept trader, I would not recommend you play this game; but for those who may hold some of these small cap stocks, it is good to be aware of these trends.

 It's been a good year for all of us, and well deserved. I want to take this opportunity to thank you for your support and wish all of my readers and clients a very happy holiday season.

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.

This week the Federal Reserve Bank announced the beginning of the end of its years-long support of the financial markets. Granted, $10 billion per month of reduced purchases is a baby first step, but over the next year, the Fed is hoping they can reduce its bond buying altogether.

For the overwhelming majority of Americans, the fact that the central bank has begun to taper its $85 billion a month of bond purchases is good news. It reflects their view (and mine) that both employment and the economy overall are gathering momentum.

In Wednesday's policy statement, the Federal Open Market Committee took great pains to promise that they would keep short-term interest low until after the unemployment rate dropped below 6.5 percent. They said nothing about longer-term interest rates. We can expect to see medium and long-term interest rates (but not short-term) continue to climb for the foreseeable future.

That means that the return you can get in a money market fund or certificates of deposits of one year or less will remain abnormally low.

If you have been vacillating on whether to take out a15 or 30 year mortgage now, or wait for lower rates, don't wait any longer — commit. On the other hand, if you have been hoping against hope that the price of that long-term U.S. Treasury bond or municipal bond you hold is going to regain its former premium price level — forget about it.

You, who remain unemployed and about to give up, don't. Corporations and small businesses will take their cue from the Fed. If the Fed sees growth, and they do, corporations will begin to add to capacity. That means more jobs. As time goes by, those of you who are not satisfied with your job, for whatever the reason, good news is around the corner. More job openings, at better salaries, with more opportunities usually accompany economic growth, so get your resume ready.

Stock market investors also benefit. Market participants can deal with the good and the bad, but uncertainty is a stock market killer. For most of this year, investors have been waiting and worrying about the impact of the Fed's taper. It is true that quantitative easing was an experiment born of necessity. During the financial crisis, the Fed had no choice but to step in to avoid a melt-down of the entire financial system.

The experiment continued as the Fed then tried to use monetary stimulus to grow the economy and stem unemployment. No one knew what would happen or if they would succeed.

Would the end of stimulus trigger a collapse in the financial markets? Would the Fed get it right, tapering at the same rate as the economy grew? Would interest rates spike and stock markets swoon?

These were all legitimate concerns and now we appear to be getting some answers. True, it is still early days and tapering has just begun, but so far so good. It appears that the Fed just might pull off the greatest experiment in modern financial history and benefit us all to boot.

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.

The bulls can't muster enough strength to push stocks to new highs. Bears lack the conviction to stage a meaningful decline. It appears we are in a stand-off, but for how long?

This year many of the yearly investments themes of Wall Street failed to bear fruit. The "Sell in May" crowd was mightily disappointed this year. Those who warned that September and then October would be terrible months for the market were also stymied. Today, it's the "Santa Claus" rally crowd. Many investors are geared up to make a stocking full of profits any day now. They may be in for disappointment.

One could argue that we have already had our Santa Claus rally. After all, the S&P 500 Index is up over 25 percent year to date. How much more do you want? I have been warning readers to expect a pullback. Many of the indicators I follow have been flashing amber lights and some have turned red.

Eight of the last 10 and 12 of the last 18 sessions have finished lower. That's called distribution but the losses have been so minor and the euphoria so strong that bulls have largely ignored that fact. Last Friday's jobs report were cause to celebrate. At first the markets did just that, gaining over one percent on the news. But here we are a week later and stocks have given back all of those gains.

Chart of the Day

The politicians in Washington had further good news this week. There won't be another government shutdown in the foreseeable future. Both sides have hammered out a budget deal, which, if passed by the Senate this week, should solve that particular problem at least through 2015.  It removes some of the cliff hanging drama the markets hate so much, but stocks barely moved.

Last week, I advised that if the S&P 500 Index regained 1,800 and remained above it for any period of time, the coast would be clear and this present distribution would have simply been another buy-the-dip opportunity. So far the bulls have not made their case. It is true that the S&P index jumped on the employment news last Friday by over one percent, but quickly broke down. And now it is below that level once again. We are below 1,780, which is another support level. I suspect we decline to 1,760, which is the 50 day moving average. That is my first downside target.

Hopefully, it will bounce from there, but if it doesn't, there is a possibility that we may test the 200 DMA. There have never been two years in a row when the S&P 500 Index did not decline to test the 200 DMA. But I am getting ahead of myself. Let's take it one support level at a time.  

Although all of this cautious advice I am spouting may lead readers to believe I am bearish, when in fact I am extremely bullish over the medium and long-term. It's just that right here, right now, the markets might Grinch us out. But once we go through this little digestion phase, the markets should resume its advance, at least until the end of the first quarter.

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.

Information abounds on why and when you should contribute to a tax-deferred savings plan such as an Individual Retirement Account (IRA). Less is known about what happens in retirement when you have to take money out of these plans. For those who turned 70 1/2 years or older in 2013, pay attention, because it's distribution time.

The original idea behind tax-deferred savings was to provide Americans a tax break in order to encourage us to save towards retirement. Individuals could stash away money tax-free while they were working and then take it out again once they retired, when they were presumably earning less and at a lower tax rate. The government determined that once you reached 70 1/2 you have until April 1 of the next tax year to take your first distribution. If you are older than that, you only have until the end of the year.

Officially, it's called a Required Minimum Distribution (RMD) and applies to all employee-sponsored retirement plans. That includes profit-sharing plans, 401(k) plans, Self Employed Persons IRAs (SEPS), SARSEPS and SIMPLE IRAs, as well as contributory or traditional IRAs.

The individual owner of each plan is responsible for computing the MRD and taking it from their accounts. There are stiff IRS penalties (of up to 50 percent of the total MRD) levied on those who fail to comply. The RMD is calculated by taking the total amount of money and securities in each IRA, or other tax-deferred plan, as of December 31 of the prior year and dividing it by a life expectancy factor that the Internal Revenue Service publishes in tables. The document, "Publication 590, Individual Retirement Arrangements," can be easily accessed over the Internet.

As an example, let's say at the end of last year your IRA was worth $100,000. You are 72 years old. Looking up the life expectancy ratio in the IRS table for that age, which is 15.5, you divide your $100,000 by 15.5. Your RMD for this year would be $6,451.61 (100,000/15.5 = 6,451.61).

Remember that you must compute your RMD for every tax-deferred account you own. However, you can withdraw your entire distribution from just one account if you like. You can always withdraw more than the MRD from your accounts, but remember that whatever you withdraw is taxed at your tax bracket. If you make an error and withdraw too much in one year, it cannot be applied to the following year. And before you ask, no, you can't roll the RMD over into another tax-deferred savings account.

What happens if you forget or for some reason you cannot take your RMD in the year it is required? You might be able to avoid the 50 percent penalty if you can establish that the shortfall in distributions was the result of a reasonable error and that you have taken steps to remedy the situation. You must fill out Form 5329 and attach a letter of explanation asking the IRS that the penalty be waived.

For those who have an Inherited IRA, you too may have to take a RMD before the end of the year. The calculations and rules are somewhat different. Generally, if you have received the inheritance this year, as the beneficiary, you have the choice of taking one lump sum, taking the entire amount within five years or spreading out the distributions over the course of your life expectancy, starting no later than one year following the former owner's death. The IRS produces a table for use by beneficiaries in Publication 590 as well.

Many retirees have a hard time remembering to take their MRD each year. It is a good idea to ask your money manager or your accountant to handle the distribution or at least to remind you each year when the RMD is due. The last thing you want to do is give back to the IRS half your hard-earned savings each 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.

U.S. economic growth in the third quarter surged higher by 3.6 percent, while jobless claims plunged by 23,000 to 298,000 as layoffs slowed. That's great news, right, so why is the stock market falling?

If you are scratching your head about now, who can blame you? Americans have been waiting for years to see the economy finally transition from a slow, bumpy recovery with stubbornly high unemployment to something akin to more traditional economic recoveries. It appears we are finally hitting our stride but growth like this could mean the end of the Fed's open-ended quantitative easing, thus the decline.

Investors are afraid that the Fed may begin to taper as early as this month, given the good news. The implications are that interest rates would rise and the stock market would decline as the Fed withdrew support from financial markets. That's what you will hear and see in the financial press, but nothing could be further from the truth.

Let me tell you what is really going on. Don't listen to these pundits who worry about a stock market bubble, pointing to the Fed's easy money policy as the culprit. I disagree. The market rally, in my opinion, is wholly justified. It is based on expectations that the economy will pick up steam and unemployment fall. As I have said before, the markets anticipate events 6-12 months ahead of time. The market media has missed that fact. They are still harping about Fed easing/tapering when the data is telling us the gains are about the economy.

It is why I have been bullish all year and am getting increasingly bullish when looking at the future. The Fed's efforts to stimulate the economy have worked.

The private sector is now picking up the slack and the years ahead should see better and better growth not only here but worldwide. That's a long-term forecast consistent with my belief that we are in a secular bull market in stocks. However, that does not mean the markets will go straight up from here.

Two weeks ago, I warned investors that stocks needed a rest. We could easily see a pullback based on sentiment numbers, momentum and technical factors. Today, I remain cautious in the near term. I accept that there are factors that argue against a decline right now. Christmas is only three weeks away and the historical data suggest a Santa Claus rally happens more often than not. Investors have also become conditioned to buy the dip, no matter how small.

If the bulls can get the S&P 500 Index back over 1,800 then the rally continues and I'm wrong. But if the markets want to use good news as an excuse to drive the markets lower, so be it. I don’t care what triggers a decline; I only care that we need to consolidate gains before moving higher.

How low could we go? If I rely on technical data, we could easily fall to the 50-day moving average (DMA) on the S&P 500 Index. From peak to trough that would be a decline of a mere 3.5 percent. If the Fed does announce the beginning of a Taper this month then we might actually see a test of the 200 DMA. In that case, we're talking a decline of over 8 percent. I find it hard to believe that the Fed would take that action on the eve of transition with new Fed chief, Janet Yellen, taking the reins in January. In either case, a 3-8 percent decline in the markets happens several times a year. It would not be the end of the world and would simply set us up for continued gains into 2014.

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.