Leaders Index 12-31-14

The market closed the year on a weak note yesterday. The major averages opened lower and continued down the entire session. All the major averages finished at their lows with the SPY leading the way with a decline of 1.03% while the COMPQ fell .87%. Late weakness caused all the major averages to close at their intraday lows. Volume was higher across the board, which produced distribution on all the major averages. It is unusual to have higher volume on New Year’s Eve day than the day before as most market participants are either not there or leave early. The higher volume is a sign that big players were selling, although there was likely some window dressing in there. We now have eight distribution days on the COMPQ and six on the SPX. This is a very high number and is a big problem for the market. Leading stocks sold off as well with the leaders index lower by .44%. Volume was higher here also so there was distribution here as well. The index closed near it’s intraday lows and is now below it’s 9dma. There has not been much real damage done to the index, but it certainly is not acting well. It was overall a difficult year for our type of growth investing. Once more, unless your stock picking was nearly perfect it was difficult to make much headway. You probably would have done better in index ETF’s. In the QE environment any attempted correction was quickly overcome as the major averages quickly reversed and continued on to new highs for the move. In fact you could probably have made more money shorting stocks at the start of these sell offs than you could buying them on rally calls. In fact the best time to buy stocks last year was when IBD went to correction. This March will be six years since the cyclical bull market began in March of 2009. This is a very long cycle and probably was extended for a year or two by all the QE going on in the world. The best money is made, in our kind of investing at least, early in the cycle and it gets harder as he cyclical bull gets older. We are very late in the cycle now. I said this last year, but I hope this year will bring a real bear market that would clear the deck for a new cyclical bull market that would allow all of us to make large gains. The first two years of a cycle are usually very profitable. I ran some numbers on the monthly Coppock yesterday and it seems that it would only take an average bear market of about 20% to 25% stretched over six to nine months to put the indicator in a position to signal a new cycle. A problem with this scenario is the Fed may crank up the printing presses again if the market looks like it was taking a serious hit. Last year was a year for shooting for singles and doubles, not home runs. If we do get a real bear, then protecting capital would be paramount in order to be ready both financially and psychologically for a new bull. The first year of that bull market would be the time to get very aggressive, now is a time to be very careful and protect your capital. We will have to see how this year plays out, but it seems like a time to be very defensive so you don’t get hurt if a bear develops. If nothing else it will not likely be boring. Jerry