Now that the year has started to take shape it is time to put money to work or to at least put work into protecting money if staying on the sidelines is the appropriate choice for you.
The equity markets are near all time highs once again. Last week saw muted volatility as many participants might have been in holiday mode. In the US, last Monday was president’s day and last Thursday was Chinese New Year. Usually these holidays lead to week long holidays.
The week did see a return to riskier equity sectors as Biotech and Pharmaceuticals saw strong performance, while Consumer Staples and Utilities did very little.
The year to date performance of various asset classes is also interesting. The first chart shows a $100 investment at the beginning of the year in a variety of asset classes. What is evident is that equities have had a stable and quiet year, showing flat to modest performance. This is in contrast to other assets classes such as gold, oil and long term US treasuries. These asset classes have seen relatively extreme values only to converge to close to flat performance for the year, with oil being the exception.
Oil is in a precarious situation. While there may be a number of fundamental and “emotional” reasons as to why oil should be able to bounce back, it has some technical and numerical barriers to overcome.
In years where oil has closed higher at least once since the beginning of the year (that has not been the case so far), on average it has taken 24 trading days to break even when falling from a high of the year. So far there has been 33 trading days this year. Therefore if oil is indeed going to reach at least the level it started at in 2015 it is going to have to do it soon. Since 2006, the “drought” of oil highs of the year has lasted as long as 38 and 58 days. So oil is in the third largest price drought since 2006.
In terms of equity performance, the markets have been led by nasdaq names which tend to be technology heavy and somewhat riskier. This helps to illustrate the riskier appetite of the current markets.
The equity performance has been highlighted by some high flying performers when compared to other asset classes and sectors.
The upcoming week will highlight mostly talk from many central bank leaders and give some direction to their monetary policies. This will probably have a larger effect on FX and Fixed Income markets. The highlights of the week in terms of economic data are :
Monday – US Existing Home Sales; Tuesday – German GDP, Euro-zone GDP, Euro-zone CPI, European Central Bank President Draghi Speech, US Consumer Confidence, US Federal Reserve Chair Yellen testimony, Bank of Canada Governor Poloz Speech; Wednesday – European Central Bank President Draghi Speech continued, US Federal Reserve Chair Yellen testimony continued; Thursday – German Unemployment Report, Euro-zone Consumer Confidence, Canadian CPI, US CPI, US Durable Goods Orders, Japanese Consumer Price Index; Friday – UK GDP, US GDP, German CPI.
The most likely average range of some of the popular ETFs are:
| ETF Ranges for Week Ending February 27, 2015 | |||
| Ticker | Ticker Name | Lower Range | Upper Range |
| SPY | S&P 500 ETF | $207.00 | $214.90 |
| QQQ | NASDAQ-100 ETF | $106.20 | $110.80 |
| IWM | Russel 2000 ETF | $119.60 | $125.60 |
| TLT | 20+ Year US Treasury ETF | $125.40 | $130.30 |
| USO | US Oil ETF | $17.50 | $18.60 |
| GLD | Gold ETF | $112.40 | $117.90 |
Now that the year has shown some trends, it is time to put money to work or to put more work into staying on the sidelines and making sure that is where you want to be. It is prime time for ensuring that you are staying with your trading thesis and making sure that your thesis is up to date. If your cash is meant to be on the sidelines make sure that is what your market hypothesis is telling you. It is easy to get caught up in “emotional” or fundamental trades. For example, it is easy to say oil is under-priced and equity market volatility has been subdued. Make sure your actions are based on evidence and market behavior and not what you would like the market to behave. It is imperative that your trading follows a well thought out plan and not off the cuff assumptions.
Good luck and trade rationally.