Happy New Year

posted Jan 5, 2015, 11:34 AM by Katie Shook

It’s 2015.  What’s on the horizon?

Of course, none of us really knows.  We do have some themes to pay attention to though.  As the US gets back on track, one theme will be (surprise) the Fed and how it reacts in a world where currencies are being de-stabilized.  Another theme will likely be Europe and the future of the Euro, with talk of a Greek or German exit from the Euro, and some of the structural and legal challenges to European QE.  And yet another theme will be global consumption and commodity pricing (specifically oil), spearheaded by China but heavily influenced by Russia and the middle east.  Clearly there are more than enough issues out there that 2015 may more likely resemble a 2011 than a repeat of 2014 (even if the long-term bull market is still intact right now).

When I take a look at the technical patterns of this market — the macro themes — the range of returns appear somewhere between +14/-10%.  That’s about 1380 on the high side, or 1875 on the low side for the SPX.  The US, relative to the rest of the world, looks to be the more attractive marketplace.  Additionally, interest rates look unlikely to rise significantly over the next year.

What this translates to (in all likelihood) is a market that climbs higher over the year but does so with a lot of uncertainty and volatility.  I’m also not ready to rule out political dumb-foolery as a derailer of the domestic markets.  The primary driver at home will probably remain the fact that there are few other areas in the global market where one can find sufficient yield to stay away from the stock market.  The biggest risk, unfortunately, remains a politically motivated machine that is willing to draw lines in the sand and hurt the economy to prove a point.

As of the writing of this post, the market has opened down about one percent and oil stocks, again, are taking a beating as oil is down around $55 a barrel.  I haven’t even looked at it, but I’ll bet the VIX has spiked again.  The SPX is sitting at it’s 50-day moving average.  We’ll see if support remains between here and the 100-dma (at just over 2000).  If this market plays out like I suspect it may, we’ll see the short-term reaction to declining oil as a bad thing.  But sooner or later the markets will figure out that declining fuel prices act like a stimulus for an economy built 70% on the consumer.  As long as jobs numbers hold up okay, lower oil prices should — on an intermediate to longer-term basis — be a good thing (unless you’re a fan of alternative fuels that is).

Happy New Year.  May 2015 bring prosperity and profitability.

Weekly Estimated Range

ScreenHunter_04 Jan. 05 06.18

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