Major averages were up on mixed volume Friday with the NASDAQ Composite Index putting in another churning day on higher volume. Three of the past four days in the NASDAQ have seen one distribution day and two churning days, another form of distribution. While major world markets continue their uptrends, China's Shanghai composite index was down for a fourth straight day as the Chinese government hinted at a mild tightening, which sent money-market rates to the highest level they have been in about four months. Meanwhile, U.S. economic reports were mixed Friday. Durable goods orders were stronger than expected, but ex-transportation they came in under estimates. The University of Michigan's consumer sentiment survey was also weaker than consensus. Mixed reports are a far cry from what the Fed needs to see to be convinced the economy is truly turning the corner. Once convinced of this, they will begin tapering. But with unemployment figures above 10% when factoring in those who have given up looking for work, any real tapering, outside of "ceremonial" tapering, is unlikely to begin until well into next year.
The S&P 500 is up over 20% year-to-date. Despite the move it's had so far this year, most have had a tough time of things including the trend following wizards who are tracked here: http://www.automated-trading-system.com/trend-following-wizards-september-2013/. This marks the third year in a row they are down with many in negative double digit percentage territory, thus severely underperforming the major market averages. This is unprecedented. This speaks to the challenging nature of QE-manipulated markets.
Nevertheless, at Virtue of Selfish Investing, stock selection, position sizing, and setting proper sell stops have never been more important as we guide members through the minefield maze of the market. Getting on board stocks such as Tesla Motors (TSLA) which we have mentioned many times, first when TSLA had a buyable gap up on May 8 when it was trading in the 60's, make all the difference to one's performance. Similarly, as members who were with us in 2011 know, trading silver via the iShares Silver Trust (SLV) in 2011 made a huge difference to one's portfolio performance. And most recently, Solar City (SCTY), which gapped up on October 11th for a buyable gap-up move that we advised our members of on that day before the opening bell, had a nearly 50% move in a mere seven days.
Given the state of quantitative easing which is on full blast among all major central banks, markets could certainly move a lot higher than where they are currently. Incidentally, since 1900, the S&P 500 had greater than 20% gains in a year more than 1/3 of the time, so its current gains to date could easily move higher, continuing the long term uptrend.
Futures are flat this morning as strength in Asia is offset by weakness in Europe, with Spain's IBEX down over 1% at the time of this writing. Leading stocks are mostly quiet, with Biogen Idec (BIIB) gapping up slightly after a favorable earnings report. Should this develop into a buyable gap-up situation after the opening bell, we will issue a BGU report to members as appropriate.