The Key for Successful Investing in 2016

U.S. stocks had their worst annual performance since 2008

Through December 30, the S&P 500 was positive for 2015, albeit barely. Meanwhile, the median stock, as represented by the Value Line Geometric Composite (VLG), was actually down, the market struggled. While an extended slump in commodity prices helped drag the stock market into negative territory this year, six of the 10 sectors in the S&P 500 posted loses.

Other risks stock investors must consider include continued strength in the U.S. dollar, which crimps sales and profits of U.S. multinationals; the presidential election in November; and ongoing geopolitical risks around the globe.

We noticed last year the divergence between the major indices and the majority of stocks, S&P 500 index is still in consolidation, a closer inspection reveals some bullish indications, such a divergence has been a rarity. In fact, since the inception of the VLG, this is just the 7th year where the S&P 500 up for the year while the median stock was lower. The previous 6 years were 1970, 1984, 1987, 1998, 1999 and 2007, the 1998-1999 and 2007 events occurred following several years of relatively unabated gains in the market. They also represented cyclical tops in the stock market. 6 years into a cyclical bull market he ends of cyclical bull markets, ala 1999 and 2000.

Other risks stock investors must consider include continued strength in the U.S. dollar, which crimps sales and profits of U.S. multinationals; the presidential election in November; and ongoing geopolitical risks around the globe.

It can be the case again but from the charts we can see also other options –   

My assumption is that we are going to see the index in 2180-2200 numbers at first quarter of 2016. Any break below 2000 will take the index further down till 1867. Long term weakness can be seen only below 1860 level. The previous peak was formed around 2137 in May, from there the index made new lows at last august 1833.

Some of the lagging indicators are also now turning bullish, the last time the SP500 saw the same pattern was in early 2012, which cause the index to climb steadily for the next few months plus if we will look on the BPSPX : The Bullish Percent Index (BPI) is a breadth indicator based on the number of stocks. The Bullish Percent Index offers something for all sorts of traders. Bottom pickers can look for bullish reversals below 30%. Top pickers can look for bearish reversals above 70%.

We can see the same pattern occurred in 2011, if that case will return we can see SP500 gets to a new high. 

For those who invest in stocks and not only on the index, you should pay attention to:

Focus on financially strong stocks. “Companies with strong balance sheets typically outperform those with weak balance sheets in a rising interest rate environment”.

Pinpoint stocks with high U.S. sales. S. Dollar will continue to strengthen against foreign currencies, such as the euro, especially since the European Central Bank is still cutting borrowing costs.

Go for growth, growth stocks are the place to be, not value stocks.

There aren’t a lot of alternatives for investors seeking a return. Stocks are one of the few asset classes able to provide returns that can outpace inflation, even though inflation is already low. Investors are generally leaning toward stocks

A few words about the Nasdaq 100

A close look show us that this index has the most powerful trend, consolidation stay in 4480 area to 4740 – break up /down those levels will lead to 5000 area the up side or 4237 on the lower side.

2016 outlook is supportive of equities driven by improving global growth, slowly rising interest rates, a stronger U.S. dollar, and low inflation, Technology and Financials remain the two largest sectors within the SP 500 at 37% of the SP 500 and since they had their absolutely crushing bear markets in the last decade. Managing the “risks,” and rebalancing portfolios accordingly, should be the key for successful investing in the New Year.