Thursday, December 31, 2015
Happy New Year?
2015 was a tough year for most traders. The broad averages went nowhere and there were few real trends to trade.
Oil and energy had an historic decline caused by overproduction as a result of new exploration technology developed over the last decade combined with a long period of historically low interest rates that spurred investment. Combined with a lack of will to control prices by the OPEC members oil has declined to a level that is not profitable for many of the new producers. This has resulted in a wariness on the part of bond investors for the low grade/high yield bonds of the oil patch. The worries over the fate of oil and junk bonds has been a drag on the overall stocks all year. This at a time when the U.S. Federal Reserve bank has finally initiated the long awaited first move to rise interest rates to a level that is more in line with history. And as they do this there are signs that the U.S. economy may be losing momentum. This business cycle is long in the tooth, as is this bull market in stocks.
With that said I think we may see a strong rally in the first months of the new year that is spurred in large part by a rally in energy. Most of this will be contrarian greed and short covering by speculators. There will probably be some stories out of the middle east and I would not be surprised if the Saudis start to talk up the price of oil with promises to reduce production. The can move the market with words right now. (If they were Russians they would trade the market to their benefit.)
On the charts JNK does look to be trying to find a bottom. The dividend payers in the gas transportation area have been hit hard during this year and should rally as investors try to pick bottoms and secure dividends.
China may see more inflows than this year. And it may, MAY, finally be a good year for emerging markets, but only if the U.S. dollar is weakened by a slow U.S. economy and a Fed that is slow to raise rates. Time will tell.
Buy on the way up
Always control your risk and limit your losses
And cherish those you love.
Happy New Year,