ALL THAT FOR WHAT?

The markets closed 2011 with a whimper today as the S&P closed the books with a small loss that brought the index to within a point of where it opened the year.  It was a tumultuous year to be sure with lots of wild swings and a treacherous environment for active investors and those buy and holders that could not withstand the 10% plus drops that happened.  2012 promises to be another challenging year with European problems still on the horizon and not behind us yet.  That said, we believe that 2012 will be a good year in the end.  Our focus the last few months has been much more on capital preservation.  That will continue as we enter the New Year. 

The lackluster end to 2011 will likely lead the way for an fast moving January as traders make bets on the winners for the coming year.  Volume will pick up significantly and we will soon get a sense of whether the modest December rally has enough legs to carry the market further for a little while.  With a short first week of January, it may end up being the second week before we get a true sense.  We are watching things closely as the next few weeks will be key to the 2012 year.  Sam and I wish you all a prosperous, healthy and wonderful 2012! 

More of the Same or Is This Time Different

Stock futures are up sharply this morning on news that the US Federal Reserve, the European Central Bank, the Bank of England, and the central banks of Canada, Japan, and Switzerland announced a coordinated plan to increase availability to dollar liquidity for financial institutions.  The action takes the immediate pressure off of European banks just as they were showing signs of an increasing liquidity crises.  While the short-term impact is certainly positive, the longer term effects are unknown.  The current market is dependent upon government intervention for any positive movement.  That is not to say that this rally can't last for some time.  After the windfall decline over the last few weeks, we will have to wait and see whether or not the US indices can get through the levels of resistance laying before them.  The S&P will open above its 50 day moving average and the next level of resistance rests at the 200 day moving average.  That level is at 1233 just a few points above where the S&P will open. 

The December 9th meeting of European leaders lies on the horizon.  That meeting could yield a longer term solution or could bode ill for the markets if it leads to no unified action.  The markets continue to be driven by political maneuvering which makes it extremely difficult to trade this market.  It becomes a coin flip on whether or not the market is going higher or lower on any given day as technical and fundamental analysis takes a back seat to the whims of politicians.  Our portfolios are currently market neutral - waiting on some direction.  We are watching closely.

Volatility and More Volatility

Market weakness continued today with no specific catalyst.  U.S. economic news has generally been good and improving over the last several days.  However, headlines in Europe regarding their credit crisis and the growing yields on specific country bonds have created an environment of continued unease and uncertainty.  That could change at any time as the European situation is very fluid and positive headlines could move the market sharply higher.  Similarly, more negative news could quickly turn this market very ugly.  As we have discussed a number of times, basing investment decisions on the whims and conversations of politicians is a virtual coin flip.  On the U.S. front, recent news that the Congressional super committee tasked with reducing our country's deficit may have trouble (surprise) reaching a consensus provided additional nervousness over the last few days.  One of our equity positions was stopped out today, so we have liquidated it and moved to a little more defensive posture until the current weakness plays out.  Technically, the S&P broke a key level of support today so the bulls will have to make a stand soon.  We continue to believe that the market will rally into year end but it may start from lower levels than the market close today.  Time will tell and we are watching things closely.

Italy Woes

The US markets sold off hard this morning as fears about the stability of Italy reemerged.  European markets were down 2-3% as the 10 year Italian bond yields reached historic levels.  The resignation of Italian prime minister Berlusconi was shrugged off yesterday but reconsidered today.   As the 8th largest economy in the world, Italy's economic stability is much more important than Greece's.  The debacle that accompanied all things Greece will pale in comparison if Italy follows the same path.  It is a very fluid situation and one we are obviously watching very closely. 

US markets are off their lows and it will be important to see how the market closes this afternoon.  A vast majority of mutual funds and advisors have underperformed this year and will be anxious to buy any dips in the market.  This buying pressure could keep the end of the year rally intact.  1220 on the S&P is a key number to watch as a breach of this on the downside would indicate further weakness and would call into question the rally that began in early October. 

More Trouble in "Paradise"

The European issues that seemed just a few days ago to be off of the front pages is back in bold letter headlines.  The debt deal that was supposed to rescue Greece from the depths of their debt is suddenly under question as the Greeks themselves wonder if it is the best deal they can get.  The response in world markets has been as brutal as the celebration of last week.  The S&P was down 2.5% yesterday and is on pace for a similarly bad day today.    After such a large move in October, the markets were due for a pullback of some sort.  We'll see how the market closes before determining our next move.  We believe that the world powers will come to their senses and work something out in the short term to stem the tide.  We think that the market will find a base and continue its rise into the end of the year.   In the longer term, we remain concerned with all things Europe as any deal done today will have to be reforged for the problems in Italy, Portugal, Spain, Ireland, etc...  Many European countries are heading for Greece style issues and, unfortunately, their economies are much greater and any measures will likely have greater effects on the world economy. 

Lift Off

The markets are soaring higher today on a "resolution" to the European debt crisis.  It is hard to argue with the tape as the markets have staged an unbelievably impressive rally since the first week of October.  The news out of Europe was just fuel for the fire.  The markets have been overbought for a couple of weeks but that has not stopped the bulls.  Significant resistance levels were taken out today and higher prices look likely for the rest of the year and into next.  With the European debt issues off of the front pages for awhile, the markets can focus on a slowly improving US economy and earnings that have turned out to be better than many expected.  There is no doubt that Europe will return to the front pages in the coming months as the current solution just buys a little time.  Spain and Italy remain embroiled in their own economic troubles and their economies make Greece look like a pittance.  But that is an issue for another day.  Today the world markets are celebrating and the celebration should continue on for awhile though there will be bumps along the way. 

What's next?

Markets were up strongly yesterday on the hopes that Europe will work something out.  We'll soon see as the European leaders meet on Wednesday to try and craft some type of plan.  Historically, next week marks the worst week of the year.  With the market overbought and seemingly postured for the good news out of Europe that may or may not come, we would expect lower prices early in the week.  We do think that after a period of consolidation or correction, that the market will continue its uptrend possibly into the end of the year and early next.  It is likely that we will move back into the market next week after being market neutral.  We will see what the week brings.  Many of the indices have made small breakouts from the trading range and if those levels can hold would be very positive.  Much can happen over the weekend so we will watch to see what happens during the first part of the week. 

More of the same...

The market looked like it was going to shrug off a number of poor earnings reports today as the market was flat for most of the day.  In fact, we were just about ready to make a few trades and move to a less defensive position before the market sell off started shortly after lunch.  We will wait and see what tomorrow brings.  The upper edge of the S&P range at 1220-1230 has proved to be stout resistance and we would like to see the market go through this before getting too excited.  A revisit to the lows at 1100 is not out of the question considering the volatility the market has experienced over the last few months.

WELCOME

Welcome to the extended version of the BAM Market Wrap.  We are not bloggers by nature but have had clients and friends inquire about our market thoughts in between our newsletters.   The number and content of posts will likely be determined by the conditions of the markets and the interests of our readers.  We would greatly appreciate your feedback.