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Dave & Donald Moenning

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Officer for his Chicago-based Registered Investment Advisory firm, Heritage Capital Management (...

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2014: The Little Crisis That Couldn't

Traders that have followed the crowd's "consensus" view on what was supposed to happen this year have likely not been having a good year.

This is the second consecutive year in which the self-proclaimed masters of the universe have gotten it wrong - very wrong.

At the beginning of 2013, everybody and their brother was projecting doom and gloom. The "fiscal cliff" was going to kill the U.S. economy. Europe was going to collapse and kill the global economy in the process. China's growth rate was going to fall on its face. Therefore, all those experts, with all of their fancy Ivy League degrees, predicted that the sky was definitely going to fall in 2013.

Related Link: What History Tells Us About Markets And Middle East Crises

And how did the market react? It put up a gain of 30 percent. As a result, hedge funds had another year of particularly weak returns.

Déjà vu All Over Again

The situation playing out in 2014 is a bit different. But at this point in the year, the results are largely the same for those using a "crystal ball" to guide their investment strategy.

For example, there was a lot of "Sell in May" talk a couple months ago that never materialized. Similarly, there were a lot of predictions of a severe correction that was going to happen in the second quarter.

For the record, the second quarter is almost over and the S&P 500 has made at least a dozen new all-time highs since the end of April.

What has kept the bears and all their negativity from being sent packing in 2014 has been a steady stream of "crises" for investors to fret about. According to the staunchest of bears, each and every one of the dilemmas that have cropped up so far this year "should" have sunk the market.

However, the chart below suggests that the market hasn't cared that much.

S&P 500 - Weekly
spx_weekly-6-18-14.png

This is not to say that the bears haven't been trying or haven't had anything to work with in 2014. There have definitely been opportunities for the bears to get something going to the downside.

Below is a quick summary of the "crises" that investors have had to confront in the first half of 2014:

  • The "Emerging Markets Currency Crisis"
  • The Crimea/Ukraine/Russia "Crisis"
  • The Polar Vortex-Induced Economic Speed Bump
  • The Momentum Meltdown in Biotech, Social Media and Internet Sectors
  • The First Defaults in China
  • Tepper Talking Trash at SALT
  • And now... the Iraq "Crisis"

To be sure, this is a pretty impressive list of "crises" that the markets have had to deal with. The chart below illustrates the various "issues" that have defined the year so far.

S&P 500 - Daily
spx_dailly-6-18-14.png

Granted, a five percent gain on the S&P 500 isn't much of anything to write home about. If the bears have it right this time, that puny gain will likely be wiped out quickly once oil starts to run past the $120 per barrel level.

Yet, through it all, the market appears to be none the worse for wear.

Aren't There Concerns?

To be clear, the bulls' winning to date doesn't mean everything is perfectly fine and that stocks should be expected to march straight up. No, despite that fact that a new secular bull market has likely begun, the current leg of the bull is definitely getting old. While bull markets will occasionally last longer than most believe possible, eventually all good things do end.

Related Link: Iraq Is Back - Is It Time To Panic?

In addition, there are some important technical divergences in place. Next, most everyone will agree that the central bankers of the world have done a fine job of propping up not only the banking system and the economies of the world, but also the major stock markets. The bottom line here is that the Fed will pull the punch bowl at some point.

The Point Is...

Using a "crystal ball" to guide one's investing strategy - especially when it comes to the U.S. stock market - can be problematic. No one has been able to "call" the big moves in the stock market correctly over a long period of time. Thus it is important to have systems, rules, indicators or guidelines to help keep accounts on the right side of the prevailing trend.

True, there are no perfect indicators or system. Sure, a system or a set of rules may cause one to look foolish from time to time (been there, done that!). However, having an unemotional method that can keep one's trades in line with the really big, really important moves in the market may help avoid losing sleep over a portfolio or the market action.

Click Here to Receive the full "Daily State of the Markets" report each morning before the opening bell. Dave's full report includes a list of the current market drivers, trend analysis, key technical levels, six momentum indicators, two early warning indicators, the weekly State of the Market Model, pre-open analysis, and a thought for the day.

Tags: bears bulls Crisis

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