We are extremely proud to end 2014 with a return of 7.4%*. The FTSE 100 over the same period made a net loss of 2.7% which means we outperformed our UK benchmark for the year by 10.4%.
*1st January 2014 – 31st December 2014.
This information is taken from The Big Picture, to download a sample copy please just click here.
Is the market healthy or unhealthy?
The way we use to check if the market is behaving as it should is to look at the trading action (price and volume activity) of institutional investors. Why do we do this? The stock market is about six month forward looking and its daily activity is the consensus conclusion whether institutional investors like or don’t like what they see happening down the road. By watching what the big players are doing (buying or selling) each and every day, it can provide essential clues to which way the market is likely to head.
It’s best to try to get ‘in sync’
Institutional investors control approximately 75% of the market’s future direction, which is why we aim to keep ‘in sync’ with them. If you don’t, it feels like trying to swim against a strong current. When you don’t get in sync, you often get hurt financially and that’s why we like to see if the 800-pound gorilla investors are buying, because when they do, it strengthens the market.
However, if they are selling, it weakens it. The other thing we like to keep a close eye on is the behaviour of leading stocks. If the market's best stocks are acting weaker than the general averages, it’s negative. However when leading stocks are outperforming the market, it’s positive.
Bull market? Bear market? Where are we?
Take a look at this 20-year chart of the NASDAQ Composite and you’ll see that the bull market that began in March 2009 (Point A) is almost six years old and for now remains intact.
Since the uptrend began, the NASDAQ Composite has made a very impressive return of 278.1%**. However, to make that gain it has had to experience three quite challenging corrections. The first (Point B) occurred from April to November 2010. The second (Point C) is a correction that started in May 2011 and ended in January 2012. The third (Point D), began in late March 2012 and finished March 2013. Since then we have had several retracement periods but none of them have been as severe as these three.
** Performance data taken 27th December 2014.
NASDAQ corrects 5.5% during December
On the 28th of November the NASDAQ Composite temporarily topped out at a price point of 4810.86 (Point E). Over the next twelve days we saw a sharp retracement occur of 5.5% (Point F).
The final down day of the pullback sent the Composite a touch below its all-important 50-day moving average (Point G). And because that day it came down to a price level of 4547, it means it undercut its recent breakout level of 4610 (Point H) effectively shaking out many nervous and anxious technical investors.
Market correction spooks investors
After plunging 3.4% from December 12th to the 16th (Point I), investors and market commentators turned extremely bearish. For example, many were talking about the market collapsing from that point and others were saying that the six year bull-run was finally over. We also heard a lot of talk that it was time for investors to move into cash.
On Wednesday 17th of December, in the Daily Market Update, we said…
“The good news is that even though the market has fallen hard five times over the last seven trading sessions, we are still of the opinion that this is yet another healthy bull market correction – a normal and natural retracement period that are not as deep nor do they last as long as fully blown bear market corrections. A key characteristic of bear markets is that the majority of top stocks fall like stones from the sky and fortunately this is something that has not yet occurred.”
The NASDAQ’s speedy recovery
After shaking out all the weak hands during the period 28th November–16th December (Point J), investors then witnessed what turned out be a very fast market recovery. On Saturday 27th December, just seven trading days later, the NASDAQ Composite was back priced very close to its old highs (Point K).
Shaky start to 2015
The NASDAQ trading at its old highs unfortunately didn’t last long. When we took a look at the Composite’s activity on Tuesday the 6th of January 2015, the index behaviour was bearish. The NASDAQ plunged 1.57% (Point L) in average volume (Point M). Declines in average or above average trade indicate that institutional investors are selling – a bearish sign.
It was the fourth down day in a row for the US technology index (Point N) and it wasn’t encouraging to see the NASDAQ fall below its all-important 50-day moving average (Point O). If it does drop lower, there is a tremendous amount of support at the 4600-4611 level (Point P). The good news is that most market commentators have once again turned extremely bearish and from a contrarian point of view, this is a positive.
This information is taken from The Big Picture, to download a sample copy please just click here.
As always, if you have any questions or thoughts on the points covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.
About ISACO
ISACO specialises in ISA and SIPP Investment and is the pioneer of ‘Shadow Investment’; a unique service that allows you to look over our shoulder and buy the same funds that we are buying. Together with our clients, we have an estimated £57 million actively invested in ISAs and pensions***. Clients like us because we have a track record of ‘beating’ the FTSE 100****. Over the last 17 years, we’ve outperformed the Footsie by 77.9%. You can find us at www.ISACO.co.uk.
What is Shadow Investment?
Picking the right fund for your ISA and SIPP is not exactly the easiest job in the world. And knowing 'when' to buy and 'when' to exit is even more difficult! Our ‘Shadow Investment’ Service is here to help. Our service allows you to look over our shoulder and buy the same funds that we are buying.
When we are thinking of buying a fund, we alert you so that you have the opportunity to buy it on the same day that we buy it. We also tell you about when we are planning to exit the fund. You control your investment account, not us. You can start small and invest as little or as much money as you like.
By knowing what we are buying, when we are buying and when we are exiting, throughout the year you can mirror our movements and in effect replicate our trades. This means you have the opportunity to benefit from exactly the same investment returns that we get. Our investment aims are 10–12% per year.
We are totally independent, fully transparent and FCA compliant. We’re warm, friendly and highly responsive and it’s a very personal service that gives you direct access to the Sutherland brothers; ISACO’s two founders.
Who are ISACO’s clients?
Clients who benefit most from our service have over £250,000 actively invested and the majority of them are wealthy retirees, business owners, self-employed professionals and corporate executives. We also have clients from the financial services sector, such as IFAs and wealth managers.
Do you have questions?
To have all your questions answered, call 0800 170 7750 or email us at: info@ISACO.co.uk.
*** November 15th 2012: Internal estimation of total ISA and pension assets owned by ISACO Investment Team and ISACO premium clients.
**** December 31st 1997 - December 31st 2014 ISACO 105.5%, FTSE 100 27.6%. ISACO Investment performance verified by Independent Executives Ltd.
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