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Table of Contents
3 Introduction 4 Alan Brochstein 6 Matt McCall 8 Tim Melvin 10 Dave Moenning 12 Sang Lucci 14 Vader Trader 16 Jea Yu 17 Serge Berger 19 Christian Tharp
-2Predictions for 2014
Introduction
Marketfy.com brings the brightest traders in the industry into one single marketplace - from educational courses and live trading rooms to options trading and ETFs. Theres a new year upon us with a market more complex than ever before. Information travels in real time, algorithmic trading dominates the majority of volume, and politicians continue to make decisions at a snail pace. In other words, theres endless possibilities of where well be when the clock strikes midnight on January 1st, 2015. With a plethora of brilliant trading minds at the tip of our fingers, we decided to get 201 market predictions from all the Trading Mavens on Marketfy. com. As always, these are just suggestions, opinions, and predictions. What you do with it all is completely up to you. So let the games begin...
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The top panel is price of the S&P 500, and there is no denying that the trend is positive: We are at an all-time high. The middle panel shows forward PE, currently about 15X. Valuation is fair to maybe slightly cheap, especially if we are going to have an economic acceleration. The bottom panel shows the dividend yield relative to Treasuries. While I dont expect interest rates to rise dramatically, it appears that the market is pricing in some increase. Over the past 15 years, the dividend yield, currently at 77%, has been a median of 41% of the 10-year Treasury. My forecast: 16 PE, 6% EPS growth to $123 for 2015. The bottom-line: A year-end close of 1968. Bonus forecast: Unlike 2012 and 2013, the market will not trade the entire year above the 2013 close in 2014.
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Bonds will be one of the Worst Performing Asset Classes: In 2012 the yield on the 10-year Treasury fell as low as 1.39 percent before finding a bottom. During the second half of 2013 the yield traded at an average of approximately 2.5 percent. When the Fed begins to taper back the $85 billion per month asset purchases it will weigh on bonds and push yields higher. The taper will likely not begin until early 2014, but by the end of the year the yield on the 10-year will test 4 percent. Because of the inverse relationship between bond prices and interest rates, fixed income will be one of the worst performing asset classes in 2014.
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Gold will Fall to $1000/ounce: The decade-long bull market for gold has come to an end. Since hitting its high in 2011 at the $1920/ounce level the precious metal as been slowing falling as investors shun gold as a long-term investment. With stocks hitting all-time highs, inflation at low levels, and the geopolitical climate quiet at the moment there is no reason for investors to be overweight gold. The few times gold should have been a safe haven investment in 2013 it failed to rally, suggesting the bull market is over and the gains since 2001 will begin to disappear. Another 25 percent drop in the price of gold in 2014 will bring the metal to the psychological level of $1000/ounce.
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Korea Electric Power (KEP)is currently trading at a little less than 40% of its tangible book value and is one of the cheapest stocks in the world right now. They are the only company currently producing and transmitting power in South Korea and should benefit as that economy continues to remain relatively strong. I have no way of knowing what silver prices will do next year but I do know that one of the larger mining operations can be purchased at just 50% of its tangible book value right. Coeur Mines (CDE) has silver and gold mining operations in assets located in the United States, Mexico, Bolivia, Argentina and Australia. While I view this as more of a five year stock I will offer it up in my 2014 prediction list as it si simply too cheap. At 38% of tangible book value Royal Bank of Scotland (RBS) is one of the cheapest banks in the world. Since the financial crisis the bank has been selling non-core assets and operations and refocusing on its core lines of business. They recently announced that they were speeding up their exit from US retail operations and putting remaining non-core operations and troubled assets into an internal bad bank and just let them run off over the next few years. At this valuation any company specific or economic news of a positive variety could turn this into tone of the biggest gainers of 2014. I have no idea what the stock market will do next year. I do know that these four stocks are very cheap compared to their assets and appear to be able to survive long enough to thrive.
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Stock Picking Will Continue To Work: After several years of being frustrated, stock pickers had a great year in 2013. In short, we believe this will continue as correlations amongst stocks (how stocks act relative to the S&P 500) have fallen, providing managers an opportunity to add alpha via stock selection. One of our favorite alpha add strategies is to buy stocks that corporate insiders (those who have to report purchases of stock in the company they work for to the government) are buying but only when they are buying heavily. Weve been running a portfolio based on this strategy since 2008 with great success and have discovered that these stocks tend to follow a similar pattern. Youve likely not heard of most of these stocks, but they can add serious alpha to your stock picking. See the chart below for a summary of what we call the insider buying pattern.
To learn more about how to use an insider buying strategy, check out the Insiders Portfolio on Marketfy. No New Crisis Means No New Bear Market: Anyone who is new to investing in the last 13 years probably doesnt understand how bull markets work. Since 2000, the stock market cycle has been bust, boom, bust. Thus, most investors are currently preparing for another 2008. However, it is important to recognize that over the last 35 years, there have only been 3 BIG bear markets (1987, 2000-02, and 2008). Point number two is that all of the really nasty bears were a result of some crisis, an extreme overvaluation or an event. So, given that valuations are fair, earnings are at record highs, interest rates and inflation are low, and the economy is likely to improve, the bottom line is that unless we see an external event or a new crisis develop, we are unlikely to see another big, bad bear for a while. Therefore, it will likely be best to put your bull hat on and enjoy the ride. Oh and buy the dips along the way too.
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AAPL will break $600 easily. Carl Icahn can get more out of his Twitter feed than he already has. He has sent NFLX from a sub $60 stock to one that hit an intra-day high of $389.16 after its Q3 earnings report. Mr. Icahns recent Tweets, publicizing the activist investors push for AAPL s CEO Tim Cook to support a $150 billion stock buyback, should only intensify the tech giants current bounce back from its spring low after hitting an all-time high of $705.07 in September 2012. My prediction: after breaking its 200 day moving average in August, its 38.2% Fibonacci retracement of about $508 (which coincided with breaking its high to low 1/3 Speed Line), AAPL should make its way up to the 61.8% retracement of about $584 and find a way to break through $600. Or at least have a party up there in 2014
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In the spirit of market corrections, the meteoric rise of NFLX in 2013 will be followed by a sharp retracement back to its 200 day moving average in 2014. We saw this back in 2011 around the same time US debt was downgraded by Standard and Poors in early August. If the debt ceiling extension does not turn into a permanent fix in early January, NFLX may see a similar plunge, especially after Carl Icahn recently tweeted that he exited most of his position in the content provider. Time and congressional cohesion will tell
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Vader Trader
2014will bring more opportunity for traders. Heres where I think we are with current cycle:
2013 we saw the real rise of the bull market. It was filled with bear traps but not much of any correction.2014will bring the maturation of the bull as we move into the Mania Phase. It will be filled with more media attention, enthusiasm, and greed as public (retail) money gets long the equities markets. With Yellen at helm, well continue to see QE until Unemployment gets under 5.5%.Unlike 2013, I feel well see a 10% correction, potentially another bear trap as we gather more bulls...Well see 2-3 corrections in2014so be patient with entries and have cash to buy them.
Stocks to benefit:
1. Tech names doing smart technology: GOOG, AAPL, AMZN . Things like smart TVs, Smart Houses, Smart Cars, Smart Watches, etc 2. 3-D stocks mature - DDD, SSYS, PRLB 3.
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4. Healthcare Technology will be huge - ATHN, EHTH, WAGE, ISRG - continued beneficiaries of Obamacare 5. Food - CMG, SBUX 6. Investment Banks make a huge comeback.. good times for more IPOs, M&A - GS, MS 7. China Stocks - CTRP , QIHU, SFUN 8. Biotechs - REGN, BIIB, ALXN 9. Energy - CLB, EOG 10. NFLX - does a huge deal.. either with AAPL or GOOG 11. Last as the Bull Market matures.. Dow stocks will support the market with making more new highs.
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You can see from the chart above that AMZNs trend is, and has been, up for quite some time. Id expect this trend to continue unless . . . the current trendline of support breaks. If AMZN breaks the uptrending support that it has created over the last few years the stock will most likely work its way lower.
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Since 1871 Median bull market 50 months / Current bull 55 (as of 10/2013) Average bull 67 months Median return 124% / Current bull - 140% Average return 178% The stats bear out the fact that our current bull market is in the sweet spot of termination. However, bull markets have obviously lasted longer. My concern is based more on what I see on the chart of the DOW than anything else. Before looking at that chart, you most know what a Broadening Top price formation is
The key points to take from the pattern above are that Broadening Tops (BT) tend to form after strong advances and are bearish in nature. Typically, resistance is only hit 3 times.
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Worried? Me too. Unfortunately, we wouldnt know that this BT is valid until 1,000s of DOW points had been shed. In order for the pattern to be complete, the DOW would need to drop a minimum of 9,000 points. Think it cant happen? Do you know how many points the DOW dropped from October 2007 until March of 2009? Almost 8,000. Stay tuned.
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