@theMarket: Markets Are in Half Time

Stocks have had a wonderful run since mid-October's swoon. The S&P 500 Index is now up over 10 percent from its bottom. As we approach another record high, expect some backing and filling before moving higher. I wish I could say the same about the price of oil.

The price of oil is the main topic of conversation among traders and investors. Typically, as the price declines further, Wall Street energy bears vie for headlines by predicting even worse times ahead for energy. Technicians are now considering $40 a barrel as a real possibility and others are jumping on the band wagon as oil broke $75 a barrel on the downside this week.

Methinks the selling is overdone at least over the short-term. We are only a week away from the OPEC meeting and I expect some traders will cover their shorts until after the meeting. What we do know is that Saudi Arabia needs $85 barrel oil to balance their budget. But that Middle East nation is both wealthy and autocratic. It can afford to watch oil drop lower if they choose to. Besides, there may be other reasons in the wind for allowing oil to slide lower.

Excuse my penchant for Machiavellian plots, but it has occurred to me that the nation that is hurting the most from this price decline is Mother Russia. Globally, Russia is the No. 1 producer, followed by Saudi Arabia, while the U.S., at 9 million barrels a day in production, ranks third.  

Readers may have noticed that now that the weather has grown colder, surprise, surprise, events are heating up once again in Ukraine. Vladimir Putin, in my opinion, plans to annex even more territory in the east of that nation. If Europe protests or threatens to increase economic sanctions as a result, Putin could threaten both Ukraine and/or Europe with a cutback or even a cessation of energy exports. He has done it before and there is no reason to believe he won't do it again.

If I know that then surely others do as well. If I were the U.S. (and its ally, Saudi Arabia), lower oil prices would be a far more effective tool to slow or even stymie Putin's land-grabbing schemes than sanctions. At the same time it would give a real shot in the arm to American consumers, airlines, farmers, shippers and the transportation sector.

At some point, declining oil prices, coupled with the existing economic sanctions, could truly devastate the Russian economy and bring Russia to its knees. Right now, the Russian people love Putin and his misguided efforts to restore the Soviet empire. Will that adoration persist in the face of a deep recession or even a depression?

We blame Saudi Arabia for not acting to support energy prices. Pundits (including me) have claimed that it is their intent to slow U.S. shale and gas production, thereby hurting America's efforts in becoming energy-independent. Maybe so, but at the same time, it is hurting Russia far more than the U.S. and that's my point.

As for the markets, this last week has been largely a period of consolidation or sideways movement. Markets are overbought and need to work off the excesses, which is exactly what is happening. Remember, markets can adjust by either declining or sideways movement. All year long, we have seen a pattern of sideways rather than down so expect more of the same. Stay invested and enjoy the coming rally into the 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.

@theMarket: All Clear

If investors needed proof that the market's bottom is in, this week provided it. It was the best week of the year in stock market gains and it looks like we have more on the way.

That's not to say we couldn't have another pullback, but it won't be to the levels we saw nine days ago. The S&P 500's 200 DMA is around 1.905. That would be the logical limit to a decline if traders wanted to do a little profit-taking, but I don't see much downside beyond that.

One catalyst that is providing support for the market is another good earnings season. Although there have been a few spectacular misses by some big technology companies, by and large, companies have beat earnings estimates and provided positive guidance for the months ahead.

Negatives do remain. ISIS is not going anywhere soon and Ebola will continue to rear its ugly head as it did this week when a Manhattan physician contracted the disease. One can only wonder why a medical doctor, who had been working with infected patients in Africa, would "self-diagnose" rather than getting checked out immediately upon returning to the U.S.

But markets rarely discount an event more than once. So far we have had several potential Ebola cases in this country and the markets have already discounted the possibilities. In order for investors to really sell-off the markets, something new and far more serious must occur.

The same goes for ISIS. Yes, the terrorists have proven to be far more resilient and tough-minded, despite bombing runs by the U.S. and its allies. However, the opposition seems to have at least slowed their advance, which is enough for the markets.

As for the worry-mongers who follow the Fed, forget about them. In my opinion, the Federal Reserve Bank will overstay its welcome when it comes to keeping interest rates low until they are convinced that the labor market has truly recovered. And that brings us to the mid-term elections, which are less than two weeks away.

Most pollsters believe that the GOP will sweep both houses of Congress. All Republicans need to do, according to the consensus, is to continue slamming an already-unpopular president and stay away from the issues. As such, the stock market is going to celebrate their win by gaining ground. For whatever reason, markets initially go up when Republicans win elections, even though the historical data indicate that markets always do better under the Democratic Party.

Once elected, the GOP has two years to do something on the legislative front in order to carry the 2016 presidential elections. They cannot afford to do nothing and blame the Democrats, as they have done for the last eight years - if they want to win. So what can we expect?

At the very least, we should expect some kind of fiscal stimulus plan that will pick up where the Fed left off. Infrastructure spending, something this country desperately needs, in tandem with corporate tax cuts (always popular with their corporate supporters) might be a way of growing the economy and further reducing unemployment.

Most politicos would say that the Democrats would never go along with that and if they did, the president would veto any GOP-authored fiscal stimulus plan as a matter of course. I'm not so sure. As an unpopular, lame-duck president, Obama might consider a Republican-controlled Congress as an opportunity to save the reputation of his presidency. If he were to usher in a new era of compromise, even if that compromise were all his own, would he do it? We shall see but in the meantime, stay invested.

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: So far, So Good

This week's behavior in the stock market went according to plan. We broke through several technical supports, reached a fairly critical level, and then bounced back. However, October isn't over and the probability that we experience more downside remains high. Here's my take on the week ahead.

Readers who read my column last week were prepared for the S&P 500 Index to break its 200-day moving average at 1,905. I expected prices to overshoot on the downside and they did The S&P 500 Index dropped further to an intraday low of 1,820 on Tuesday. That was thirty points lower than my best guess. But before the end of the day on Wednesday, the markets rebounded to close above my 1,850 target level. On Thursday, sellers tried again, but could only push the average down to 1,835 before rebounding once again. The Index ended the day at just about the same level of 1,862.

I advised readers last week that I expect the S&P 500 to continue this consolidation process, moving slightly above and then below that 200 DMA in the days ahead. So far things are going according to plan

So, what does that say about the markets and this correction?  It says to me that this decline, although much-needed, is not about anything fundamental. Sure, Europe is struggling and Ebola cases are springing up in the United States but those are simply weak excuses for a market that simply needed a correction and now we have it.

Lesson 1: do not panic.
Lesson 2: do not sell.
Lesson 3: buy when the blood is running in the streets, and we had some of that on Wednesday and Thursday. How can I tell?

One of my best indications came when I tried to log on to one of my brokerage accounts on Wednesday morning.  The market opened down 40 points on the S&P and over 300 points on the Dow. I could not get quotes on the site and the online trading response was extremely sluggish. That usually happens when the number of people trying to sell stocks overwhelms the system. That told me there was panic in the air, which is a great time to buy stocks — so I did. The same thing happened the next day as the markets hit lows for the day once again. So I went shopping. Remember, I'm the kind of guy that buys straw hats in the winter and snow blowers in the summer.

I also look for 90 percent down days when investors overwhelmingly rush for the exits. We had those too this week. I recognize that most investors find it difficult to buy when the markets are falling. It is a scary thing to do, but it almost always pays off.

As the headline says, "so far so good" but now what?

I suspect we need to re-test the lows just to be sure they will hold. That means we could get back down to the 1,820 level or maybe 1,800, since it is a round number and prices seem to gravitate to those marker buoys. Could we break 1,800? Of course we could, but only by 20 or 30 points and even then it would probably happen on an intraday basis like the lows of this week.

Friday's rebound was a good sign. But the fact that investors were hoping the Fed will come to our rescue simply because we had a down week in the market is ludicrous. Listen people, you can't continue to make gains in equities if you don't have pull backs like this. The S&P 500 has only lost almost 10 percent from the highs before rebounding on Friday. That's the way things are supposed to happen. We haven't had a 10 percent pullback since 2011.  It is great news if you care about the stock market in the months and years to come. This kind of sell-off clears the decks for further gains ahead.

There are some real values out there. Airline stocks have been pummeled because of the Ebola crisis. Panicked investors have dumped them en masse assuming that the entire industry will be shut down and no one will fly ever again. Poppycock! Oil companies have been trounced because bears are saying that global demand for oil is so weak and the dollar so strong that 30% declines in those stocks are justified. Are you kidding me?

There is no way I can guarantee you that my scenario will turn out as I expect. Remember, this is an art, not a science, but so far, so good. Take my advice, this too shall pass and there are good things right around the corner. Next week I'll discuss some of those good things and what I expect after mid-term elections, so stay tuned.  

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: Are We There Yet?

No, is the short answer to that headline. The S&P 500 Index needs to test 1,905 or thereabouts before all is said and done. You might ask why.

The talking heads will tell you weak data in Europe is at fault. Others will blame the recent strength in the dollar. Then there is the uncertainty of the mid-term elections now less than a month away. The problem with all of the above is that investors have known all about these issues for months and months. So why react now?

Readers will recall that since the springtime I have been waiting for the markets to test what is called the 200 Day Moving Average (DMA), which is a popular technical indicator that investors use to analyze price trends. The 200 DMA is simply a security's average closing price over the last 200 days. You would think that the higher the 200 DMA climbs the more bullish it is for stocks, but actually the reverse is true

The higher the ratio climbs the more optimistic traders have become and, for a contrarian, like me, that flashes a danger signal. Historically, the S&P 500 Index has re-tested (sold down) to its 200 DMA at least once every two years. We were way overdue for a retest. This, among other indicators (mid-term election years since 1950 have experienced at least an 8 percent correction), has made me cautious as well.

Over the last few weeks I have been warning investors to expect a pick up in volatility and boy have we experienced that over the last five days. The Dow Jones Industrial Average has experienced a swing of over 2,000 points up and down through the week. Wednesday and Thursday marked the largest one-day gain and worst one day decline in 17 years. This kind of volatility, after five months of practically none, is an emotional shock to most of us.

Back in 2010-2011, we had far longer periods of high volatility and experienced much deeper pullbacks. Human beings, however, tend to have short memories so October has been especially painful for most. Your first reaction is to sell and stop the pain before it gets any worse. That's a normal feeling, but feelings have no business in investment, so what should you do?

Nothing, if you are fully invested and most people are at this point; hang in there. The 200 DMA is just a few points away. Sometimes the indexes will bounce off that line and shoot straight up, but that is rare. Usually, stocks will overshoot to the downside, and in that case, we might see 1,875 or so and then spend a week meandering up and then down around the 200 DM level.

The point is that this is a technical sell-off based on overbought markets that have been this way for some time. We are down about 5 percent from the highs. Fundamentally, the economy is in good shape. Stocks are not overvalued. We simply need to pull back and catch our breath. If you have any money on the sidelines I would advise you to start putting it to work as the market declines from here. Not all at once, because no one can pick the bottom. Industrials, mega cap stocks, technology, health care, financials are just some areas that come to mind. This would also be a good time to swap out of your more defensive positions in favor of more aggressive equity holdings.

Above all, stop worrying about the volatility. It is the cost of doing business in the equity market.

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: October Starts Off on High Note

Volatility was the buzz word this week in the stock market. The averages moved up and down by a percent or so on a daily basis but ended the week on a high note. Can we expect more of the same?

Traditionally, at least the first two weeks of this month have been volatile, so the good news is that we are half way through that period and so far there has been scant damage to the averages. At one point this week the S&P 500 Index was down about 4 percent from its highs but stocks found support around the 1935 level and bounced from there.

Friday the markets were galvanized by a jobs report that showed 248,000 job gains in the month of September. That drove the unemployment rate down to 5.9 percent, finally dropping below that elusive 6 percent number. In celebration, the markets liked that data point and added another percent or so in performance.

Of course, some worry that if the economy gains further strength too quickly that the Fed may begin to raise interest rates earlier than the expected date of mid-March 2015. So far that is simply supposition. But among Federal Reserve Governors there is growing debate on whether or not to raise rates sooner. Two, and maybe three members (after today's employment number), of the Federal Open Market Committee are petitioning for a faster rate rise. But the buck stops with Federal Reserve Chairwoman Janet Yellen, who has not indicated that an early rate rise is in the cards.

While we here in America are winding down our quantitative easing, over in Europe, Mario Draghi, the head of the European Central Bank, is wrestling with increasing their own QE program. He disappointed investors this week when he failed to announce additional stimulus measures on the heels of stimulus announced just last month. I keep reminding readers that decisions in Europe take much longer than in the U.S. Nonetheless, European markets sold off as a result.

In the meantime, the dollar keeps climbing, gold and silver continues to fall, with at least one analyst at Ned Davis Research predicting that the precious metal could ultimately fall to $650 an ounce.

Over in Asia, Hong Kong protests continue against the Mainland's heavy-handed tactics to reduce the quality of democratic elections on the island. Readers, however, should remember that prior to the peaceful transition of Hong Kong to China; Hong Kong was a colony of Great Britain. As such, its democratic rights were limited during that period as well. That doesn't make it right but it is the facts. Although it makes great headlines and sound bites, I don't believe that these protests will turn into some kind of "Asian Spring" in which the entire region falls into turmoil. Comparing what is happening in Hong Kong to the events in the Middle East is comparing apples to oranges, in my opinion.

As for our markets, I expect to see the rebound continue. In this volatile environment that means that we could reach 1,975 on the S&P 500 and 17,927 on the Dow quite easily. After that, there are two options: first, we drop back and re-test the recent lows between 1,910 and 1,935. There is a lot of technical support at those levels. If we break that, expect to see a long-overdue test of the 200 day moving average come in to play.

Or we could meander around the 1,975 level before trying to take out the historic highs. That is exactly what happened in every market dip so far this year. However, it is absolutely necessary for all the indexes to make new historical highs before the threat of another big dip is removed for the remainder of this year. In either case, I would do nothing but watch.

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.