What to expect in 2014?

Good morning

So the start to 2014 has so far been a negative affair. Equities almost always rise during the first 5 days of the year and if this period is negative then it often indicates the coming year could be negative i.e traders are motivated to trade at lower prices in a period where new cash flows from funds , investors buying up index tracking funds and fresh money being committed from investors should be moving the stock market higher.

I have mentioned it before but the time to make big money in the stock market if you are a long term trader is at the end of a bear market.  Investors often miss this opportunity as it means going against bad news and what your television set is telling you. The media creates massive emotions for investors and can easily cloud a rational judgement call. Right now the news is extremely positive on the stock market. The media is sending out shock waves calling for a new bull era and those who have been very conservative since 2008 are once again considering entering the stock market. To me this is a warning sign. There a few factors to consider here:

The first is the stock market in the UK and US is entering the 5th year of a bull market. Its impossible to call a top on a bull market but the big gains have already been made.  Safe stocks paying big dividends are now very over valued in the FTSE and are basically entering a bubble.

The second is the investors intelligence survey is now showing a figure of 61% bulls and just 14% bears. The last time the bears got this low was just before the 1987 crash. Likewise the bulls topped out at at 62% in 2007. 

So what does this mean for 2014? Well the smart money will be fully aware of what I have mentioned above which is probably why we are seeing some hesitation at the beginning of this year.  Yes we could see some more upside but its limited at this stage. It could be a year of nothing for the long term investor as the markets churns up and down with some wild swings which will be very unsettling for the average Joe on the street who is just returning to the stock market on ''feel good factors''.

If the market is unlikely to trend up or down this year then this will create a very good environment for short term trading and I plan to fully take advantage of this 

for 2014. A trending market is difficult to make money in if you are a short term trader as volatility often decreases.  If you have no interest in short term trading then waiting for the markets to test their Moving Average 200 could be prudent this year. We often see the stock market retest its MA 200 during the course of the year and this can represent a good buying opportunity.  Given the stats above on bulls and bears a decent correction is inevitable this year and when it comes it could present the last decent buying opportunity before a big bear market starts in 2015.  The transition from the end of the bull market into the a bear market will most likely be triggered from inflation and interest rates. In fact speculation on interest rate pressure could spark the correction this year.

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