How the market doesn't work

The market is a complex beast-- but in the end -- it all boils down to supply and demand. If the buyers overwhelm the sellers, then the market will rise; and vice-versa.

There is a belief among some market commentators that everything in the market is connected and if only they follow a few correlations then they should make money. Following the beliefs of these people will not only cost you money in the short-term, but will continue to put you on the wrong side of the markets forever.

The sad reality of those who have called a bear market since 2009, is that they were dead wrong; likely have no skin-in-the-game to the short-side; have done nothing to adjust their expectations to the current trends; and worse, don't even have history on their side.

To continue looking for reasons for why a continued bull-or-bear market is false, is simply a childish, loser mentality for investing that too many of us fall for. You are either on the right side or the wrong side of the market move and the longer a trend continues on the medium-to-longer-term time-frame, the harder it is to change that trend. Buying dips -- or selling rallies-- in the direction of the ultimate trend is the safest and easiest way to make money.

Look back on any bull market and you will see areas of exuberant market behaviour. Even when markets have stretched beyond fundamentals and defied correlations, there is still a reason that demand is higher than supply. You can fight this all the way but you won't be fighting it to the bank.

Quit sulking about price action and learn how to use it to your advantage.

Year end closings

As we approach the monthly closings for year-end I will share the charts and my views.

Firstly on the S&P500:

Despite the weakness of the S&P500 this week (likely year-end profit-taking) the monthly chart is setup for further gains. It's likely we will see gains in January through new position building. Greek elections on January 25th may take the wind out of the market but we may be setting up for a bubble move in stocks. Retail involvement is still low but may be limited after previous losses. The market looks set to go through 2100 though, after which a bull move may take us higher. With Japan pushing QE and the ECB looking likely to join them, we are certain to keep pushing higher until we have another structural break (think Tech bubble pop/sub-prime pop).

Euro:

A very weak monthly and yearly close in the EUR/USD assumes a certain test of the 1.20 level. This will probably happen in January as a result of the Greek elections. The results of this election and possible QE from the ECB could see further losses through 1.20.

Oil:

Crude prices are also electing a very bearish monthly/yearly closing, as WTI breaks through $53. Price should test the $40 level in 2015. We may see a counter-trend rally soon but the outlook for oil is bearish.

On the U.S. Dollar:

The U.S. dollar may put a top in soon for a pull-back, however the bullish trend will continue. The BOJ and ECB are going all out to devalue their currencies, whilst the oil price decline is threatening sovereign debt in oil-producing nations. Talk of the dollar's demise is still premature and there is too much risk out there that could see a run to the dollar.