@theMarket: Fed-Driven Rally Grinds Higher

Just when you thought it couldn't get any better, the Federal Reserve Bank gave investors everything they wanted this week. As a result, the indexes racked up their fifth week of gains in a row. Could there be six?

A combination of events has unfolded over the last few weeks that have driven the markets higher. A potential bottom in oil and its subsequent rise to over $40 a barrel has provided support as well as fuel for stock gains. Given my belief that "where oil goes, so goes the market," it should be no surprise that the stock markets have now regained all the losses suffered in 2016. Oil, by the way, is also at around the same price it was at the beginning of the year.

This week after the Federal Open Market Committee Meeting (FOMC), the U.S. central bank announced that they would keep interest rates the same. They also lowered their guidance on the number of times they anticipated raising the Fed Funds rate this year from four to possibly twice. Traders read those comments as bullish for stocks.

Readers may recall last week's column where I pointed out that the indexes had reached a critical level. In order to advance, the stock markets had to break through their 200 Day Moving Average. They did. The S&P 500 Index decisively moved above 2,019 and the Dow breached its 200 DMA as well. Since then stocks have methodically gained ground.

By now it should be clear to you that none of the bearish predictions that panicked investors over the first two months of the year have come true. As the markets go higher, the very same talking heads that were predicting markets would go much lower are now changing those forecasts. Most of this noise occurs within the financial media. You do yourself no favors by paying attention to it. The dribble you receive from television shows or emails from hucksters who are regularly predicting the end of the world is the worst kind of information.

Stocks will continue higher for now, although pullbacks will certainly occur with regularity. As a potential target, I would guess that we have a good shot at regaining 2,100 on the S&P 500 Index.  We may even touch the old highs (S&P 2,134) or close to it. But that does not mean that all is smooth sailing for the remainder of the year.

Do not be surprised if the averages decline again sometime this spring or summer as election fears spook investors and traders alike. In hindsight, I believe this year will be remembered as one of the most volatile in recent history. As such, you should carefully review your risk tolerance.

The last five years of positive (and outsized) gains that the stock market has delivered may have lulled you into a dangerous level of complacency. Historically, stock investing has not been for the faint of heart. This year has simply provided a reminder of that fact. In many cases, you may have fallen prey to "risk creep" or the tendency to become more and more aggressive in your investment choices as stocks climbed higher. It is time to revisit that attitude and those investments.

As I have written in the past, this is not your father's stock market. Central bank policies worldwide have created an entirely new playing field. It is a game whose rules and results are both hard to predict and may have consequences that no one imagines right now.

A brief look at today's currencies, for example, illustrates that point. Central bankers have engineered interest rates and quantitative easing in an effort to grow their economies and goose exports. But these same policies seem to have had the opposite impact. Negative interest rates in Europe and Japan have actually led to stronger currencies while our own policies appear to have softened the dollar's strength. None of this was in the game plan and yet it is happening right now.

Gold seems to be a beneficiary of these actions. Speculators, unsure of why and what will happen to currencies next, are flocking to precious metals as a way to protect their money or at least hedge their currency risk. As such, gold has proven to be one of the best performing assets thus far in 2016.

However, that does not mean it will continue outperforming. At any time, new central bank policies might cause this profitable trade to unwind. The potential for a sever downdraft in prices is high. Investors need to be able to weather 1-2 percent changes in price on a daily basis. Can you stomach that kind of volatility?

Over in the oil patch, price gyrations are even more pronounced. Sure, this week we have seen oil gain anywhere from one to 5 percent on a daily basis. Next week, if some oil minister somewhere shoots off his mouth, we could just as easily see declines of that magnitude. The point is that there is no way of knowing what happens next. Therefore, you need to own a portfolio that you can live with in this kind of environment.

We all wrestle with fear and greed. A more defensive portfolio will almost automatically guarantee you a lesser rate of return, at least on the days and months that stocks go up. It is a different story when markets go down. You need to strike a compromise, a balance per se, between what you are willing to lose in opportunity (upside) versus the costs of sustaining double-digit losses (if only on paper) for days or months on end.  I suggest you do that now and if you have questions email or call me.

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: Markets Are at an Important Level

Stocks spent the last week consolidating. It was a necessary exercise, since stocks were overbought. Now that condition is behind us, and markets climbed higher by the end of this week. We are now at an important level. Call it a moment of truth that will indicate to investors whether the correction is over.

Up until now, the majority of traders have considered the 11 percent rally we have enjoyed in the S&P 500 Index since February nothing more than a bear market rally. But breaking above the 200 Day Moving Average (200 DMA) would make this an entirely new ballgame.

As I have written in the past, the 200 DMA is a technical level. It is simply a security's average closing price over the last 200 days. In the case of an index, like the S&P, it is the average closing price of the 500 stocks that comprise that index.  

It is probably the most important and cleanest indicator that analysts use to determine whether stocks are in a bear, versus a bull market. This indicator has kept investors on the right side of a trade for decades. For those who follow it, as long as the stock market stays below the 200 DMA, then investors should remain cautious. Once above that level, markets are considered to be back in a bull market.

The 200 DMA for the S&P 500 Index is 2019 and the Dow's 200 DMA is 17,153. As of this writing, we are already above that level on the Dow and very close to it on the S&P. We need the markets to decisively break above those levels and stay there.

The impetus for Friday's major gains in the averages came as Mario Draghi, the head of Europe's central bank, announced additional efforts to foster growth within the European economy. Draghi announced further interest rates cuts. Europe, like Japan, is now in a negative interest rate environment and is stimulating their economy with massive amounts of quantitative easing.

As in the past, whenever central banks announce additional monetary stimulus, stock markets have been conditioned to rise in a knee-jerk fashion. In this case, European markets are higher by 3 percent or more in Germany and France, while U.S. markets are up over 1 percent.

Markets have also been helped by the continuation of oils' price rise. Crude is fast approaching $40 a barrel from a low of $26 a barrel just a few short weeks ago. As I predicted, the agreement to freeze production by some of the larger oil producers, as well as production declines by a number of global energy producers has kept the energy rally going.

Next week the U.S. Fed meets, as does the Bank of Japan. Investors may see diverging actions by both entities. Japan seeks to further their monetary stimulus and, at the same time, weaken their currency. Here in America, the Fed will be considering raising rates again at some point this year. Fed Heads are debating whether Janet Yellen, the head of our central bank, will lean towards another rate hike as early as April or wait until June.

Investors should buckle their seat belts because central bank decisions have a tendency to move markets in a big way.

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: Markets Need a Break

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

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

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.