That was not a bad first half of 2014! The SPX 500 is definitely the big winner, as it is up a solid 6% and was able to hold steady every month since January. It obviously proved the old adage of a down January wrong (“As January goes, so goes the rest of the year”).
With 6 months ahead of us in 2014, there is certainly time to see markets make their next move. The Russell 2K is up, the small cap index is higher by 3% or so (after getting hammered by 10% during a big spring sell off), and the Nasdaq is up an impressive 5.5% following a strong performance in 2013. If you can believe it, the Nasdaq is only 15.6% away from its all-time high from 2000! Not many people thought it would get there in our lifetime, but back in January 2013, Jim Cramer and I predicted it would happen at some point in the near future.
Well, with January’s strong drop, those calling for a big correction in 2014 were feeling good about their predictions. However, stocks rebounded quickly and have extended a bull run that has been ongoing for the better part of five years. Oh sure, there have been interruptions, but look at any long-term chart and the trend is quite clear.
With a five year bull run, of course there has been talk about a correction “any day now,” especially since so many people are eager for better (read: lower) prices so they can enter the markets.
I have news for them: No one can tell the market what to do, and no one can accurately predict the market’s movement, at least on a consistent basis. Everyone gets lucky making a call once in awhile, but should we pay attention to them when we’re trading or investing?
As a technician, I pay attention to the past, not to people trying to predict the future. You see, a stock’s chart provides a set of footprints that show established patterns and trends we can follow into the future. The methodology is far from perfect, but it is far better than just listening to analysts or pundits telling us what we should do.
Nevertheless, the answer to the question, “Who is right?” can still stump people. Is it the expert analysts with their predictions, or the market with its past performance?
I think the answer is obvious, but just in case there is any doubt, I have to tell you about this fantastic new book I am reading titled Clash of the Financial Pundits: How the Media Influences your Investment Decisions for Better or Worse by Joshua Brown and Jeff Macke.
There is an entire chapter devoted to legendary futurist Harry Dent, Jr., who made a couple of fantastic calls in the late 1990’s. (I read his book, The Roaring 2000’s, and it was here that Harry nailed some pivotal moments in the markets.) Everyone jumped on board to drink his Kool-Aid, but during the past 25 years, his bold calls have been just awful (and that is being kind – authors Josh and Jeff called them much worse!). He has left his followers wondering what happened as his predictions of doom have been left unfulfilled. The market has trumped his analysis not once, not twice, but three times (so far)! To be fair, Mr. Dent probably never factored in the power of The Fed and other central banks, which can (and do) control the money supply and affect market action. Meanwhile, the markets do their thing, and for those with an open mind, who are free from influence and who are able to go from day to day without any bias, those are the traders who will benefit.
Today, we hear many analysts, experts, pundits and fund managers making outlandish calls to the point that I seriously think the media enjoys twisting everyone’s heads around. I recently heard some well-known analysts who had predicted a deep correction spin 180 degrees and become raging bulls – practically overnight!
You want to know what I think will occur in the second half of 2014? Well, I have no idea – and neither does anyone else! The markets will tell me (and you) what to do each day. Follow their lead, and don’t listen to anyone.