The U.S. stock market has been happily moving sideways; with plenty of media excitement each time it moves a couple of percentage point in either direction. The analysts flaunt it as the beginning of the next major trend- which it never is.
Most investors, professionals and amateurs, are chasing after anything that has been climbing and dumping whatever has been in a downtrend. There is an emotional loathing to owning something which plummets in value, even if it later recovers all of its loss and then some.
Value traders are buying most mining shares even on days when their respective commodities are lower. Emerging markets could have the best fundamentals in the world but are mostly continuing to retreat because almost no one wants to own anything that others aren’t also buying.
The million dollar question is to determine which of the 2014 directional moves are real and which are phantom.
If we may be so bold, here is our current view of 2014 and 2015.
The sideways action in the S&P 500, with lots of hype each time there is a small move in either direction, is characteristic of how we forecast 2014 will behave, with periodic modest corrections to cause the year overall to experience a net loss.
The recent gains for TLT and TIP, U.S. Treasuries, and declines for EEM and emerging-market securities of all kinds, are not sustainable. Treasuries will resume their downtrend until their bear markets have lasted for at least two years from their peak in July 2012.
The rally for most mining shares is real and will be sustained for most or all of the year. It could very well continue into 2015.
Emerging market shares are continue to be shunned. The analysts are highly negative toward this sector which is a very bullish sign to us. Their investors are discouraged by higher lows which will persist for several months because they are perceived as failed rallies rather than as successful retests of a major bottoming pattern.
The secret to success this year will be avoiding the temptation to sell strengthening assets too soon, while having the guts to buy whatever has become incredibly unpopular at any point along the way. This reflects our ladder trading mentality to buy into panics.
Eventually it will become opportune to sell the shares of commodity producers’ ETFs. This will only happen when noticeable insider selling becomes prevalent, when average investors are making heavy inflows into these sectors, when the media have turned heavily positive in their coverage and when financial advisors recommend to their clients to buy into these assets.