2014 Technical Chart Analysis Wrap UP –
I Predicted 18,000 Back In June – Here’s What’s Next:
It was another good year for Tory Capital Economics. The start of 2014 set the tone for bulls but by the summer, sentiment became more bearish while I was calling for the Dow to hit 18,000. My analysis saw upside potential from a longer run cyclical trend that suggested low inflation in a leveling unemployment environment.
I was clear as early as 2013 that commodities/gold were becoming less of a factor and the bull market for most heavily traded ones seemed to be waning. As an economist that uses technical analysis, all indicators confirmed there was no bear market in sight for 2014 with Janet Yellen ‘not rocking the boat’. The stock market was already in a sweet spot with bond prices rising and low interest rates but the strong dollar and oil drop were unexpected. The U.S. economy will soon benefit from the dual impact of low oil costs and the stock market at all-time highs. Gas prices hitting a national average below $1.50-75 is a possibility and in short, from Wall Street to Main Street, everyone is better off than a few years ago when looking at the pump or stock prices.
I am still bullish for early 2015 but my predictions are for 6 months and never a year. I beat the stock market again this year – (results forthcoming) mostly by buying the XLF and Facebook on dips. (I literally watched some traders hate Facebook all year, never recommend it and some opted for Twitter which I was against. Facebook keeps running – going from around $54 to $80 this year so I give less credence to those jumping in and out trying to time stocks/technical analysis – without a good fundamental story. How can you miss Facebook and ask for subscriptions for your service or management fees?) This wasn’t the year to write often or trade too much because the gains of 2013 could not be replicated. Short-term trading probably worked a bit less for most market participants on the long side because of low volatility coupled with low double digit gains for the indexes.
The Equity Trading Strategy for 2015:
- I would be more enthusiastic about equities if I saw more momentum stocks rallying but some of the declines seem orderly. Facebook recently confirmed suspicions it could return to its new high (see Facebook update here). Facebook may continue to be a stock with a strong growth story if mobile growth doesn’t slowdown this year.
- Apple has had issues with #bendgate and this could signal a medium-term inflection point as large buyers are looking elsewhere for growth.
- TSLA – falling oil along with competition means sentiment and momentum could change for this high flyer.
- Watch the momentum players and small/midcaps carefully. Ignore oil – which will continue to fall and may not find a bottom this year that could be considered solid support. Ignore gold. Stick with the winners until they become losers. In the next 6 months look for more IPOs and former leaders like Google to possibly lose growth investor funding as they are replaced by the likes of Facebook and Alibaba. Alibaba is up around 10 percent from its IPO and could double in a year like Facebook which I’ve been a fan of.
- Alibaba is widely owned by hedge funds and institutions betting big on China. Even if China’s growth slows, online shopping will continue to rise exponentially as it did in the U.S. during the last few years with high unemployment. I’ve been watching some call a decline in China for 2 decades that have been wrong. Some of these same people had their highest short levels at the end of 2013 while the stock market hit 18,000 as I predicted only a few days ago. We’d be buying Alibaba on dips (see my Alibaba call here) and looking for small caps to continue to break out of what seemed to be a consolidated rangebound channel for a few months in order for the current rally to have legs as buyers begin window dressing this week.
- Expect more retail participation in 2015 and look for more chatter from market participants looking to make quick money.
Until the most hated rally becomes the most beloved rally, long term technical analysis indicators remain positive in a low inflation environment, the market could digest the possibility of rising interest rates in 2016-17 as it successfully snapped back from the taper tantrum. After calling for the Dow to hit 18,000 in June – I reaffirmed my call after the August distribution which led to an even sharper fall in prices in October.
The Dow returned higher and while some P/Es may be getting fairly priced – I expect higher earnings based on a stronger economy which will make ‘pricey’ seem less obvious in the short-run. If the highly leveraged stocks don’t continue rising and IPOs stop coming to market successfully -it’s time to reassess.
I’ll be writing infrequently as usual only looking for pivots and inflection points of interest for the major averages and equities I think matter. Follow my updates via Twitter and Facebook for more timely market analysis.
Happy New Year…
Celestine O. Chukumba Ph.D.