Fitting Finish to a Tough Year

 | Dec 31, 2015 | 4:01 PM EST
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It's a wrap! And not a minute too soon. Let's put this year in the history books and start looking forward to a great 2016.

The action today was a rather fitting finish to a difficult year. It was disappointing and frustrating. One big difference today was that the weakness wasn't hidden by a few big-cap names. The FATMAN group acted poorly and couldn't cover up the fact that breadth was negative and there weren't any notable pockets of strength.

This time of the year we often see many of the winners sold and losers bought for strategic reasons, which make for some odd action in the last few days of the year. It is mistake to read anything significant into this sort of action, but we'll have more normal trading fairly fast next week.

What I find most striking about the marker right now is the high level of pessimism about 2016. I don't recall so little optimism even back at the end of 2001 or 2007. From a contrarian standpoint that may be a good thing, but we are going to have our work cut out for us to navigate through the rapids.

Enjoy the break and we'll go to work on Monday.

Happy New Year!

Dec. 31, 2015 | 1:18 PM EDT

How to Make Next Year Better Than This One

  • Navigating the market's twists and turns will produce the big gains.

Some buyers finally decided to show up and we have a much better tone to the action. It is still extremely thin and choppy, but breadth is very slightly positive and market players are wondering if the S&P 500 might manage to close over 2058.90, which would produce the seventh straight year of gains for the index that is the most widely used benchmark.

Given how poorly many managers have done this year, they would probably prefer that it end in the red so they don't look as bad, but at least it's another story for the media to cover. There isn't much news out there, so stories about predictions are the primary content right now.

Many of the predictions for 2016 are interesting and thought-provoking, but will they make money? Even if you know for a fact where the indices will end up for the year, it is navigating the twists and turns that will produce the big gains.

What is going to make us money in 2016 is the strategic decisions we make along the way. There are three steps to the process, and to prosper in the year ahead we need to focus on these things.

First is to understand the dynamics of the market we are in. We need to recognize themes as they develop and how the market action is shifting. The big theme this year was the outperformance of the FATMAN names and the meltdown in oil and commodities. Small-cap stock picking did not work well and indexing would have left you flat.

I don't know yet what themes will emerge in 2016, but I'm going to be looking for them and writing about them every day.

Once we identify some themes, then we need a plan on how we will profit from them. If oil bounces, then what will be the vehicles we use to play that trend? If the indices break down, do we use leveraged ETFs to take advantage or do we look to short individual stocks?

Those strategic decisions will be a major factor in our ultimate success, but what will really matter the most is our ability to stay disciplined and implement those plans. When we are wrong, we admit it and move on. When we are right, we do your best to take full advantage.

We don't need to know what will happen in the market in 2016. We just need to be ready to attack it each and every day. We will be disappointed and discouraged at times, but if you stay with it the rewards will come. We will need to be creative, disciplined and vigilant. If we can do that, it will be a stellar year.

Dec. 31, 2015 | 10:30 AM ET
It's Slow and Negative Out There, but Don't Worry

  • · Nothing that is happening today means much.

The market action is slow and negative, as few folks seem very interested in trading today. If anything, the main driving force today is to close out positions and raise some cash for a fresh start in 2016. Breadth is running two to one negative, volume is abysmal and pockets of momentum very limited. In fact, what is most notable on my screens is the complete lack of bids in a number of small cap names.

I have a few odds and ends on watch, like Solar3D (SLTD), Weight Watchers International (WTW), Universal Display (OLED), Adamas Pharmaceuticals (ADMS) and Amira Nature Foods (ANFI), but there just isn't enough sustained momentum in this market to allow for aggressive action. It is random with a negative bias, which is about the toughest trading environment there is.

It is a good time to contemplate the year ahead. I'll have some thoughts on that later, but I believe the key to success isn't correctly guessing what may unfold, but to be mentally and emotionally prepared to deal with changing conditions. If we focus on the things we can control, then we can deal with whatever the market may dish out.

Don't spend too much time worrying about this action today. It may be the last day of the year, but nothing that is happening today means much.


Dec. 31, 2015 | 6:43 AM EDT

The Path to Profits in 2016 Is Made of Obstacles

  • The key is to stay vigilant and react quickly.

"The process is about doing the right things, right now. Not worrying about what might happen later, or the results, or the whole picture."

--Ryan Holiday

We bid farewell to 2015 today, and for many market participants that is good news. The indices were not terrible, but that helped to make the year much harder. A few bigger cap names helped to hide the fact that the average stock performed quite poorly this year. If you didn't fully embrace the small number of stocks to outperform, it was extremely difficult to keep pace. Money managers underperformed their benchmarks substantially, and individual stock pickers faced substantial challenges.

Not only was stock picking difficult, the ever-growing influence of computer algorithms and central bankers often undermined the logic of the action. Fundamentals and technical patterns were often rendered meaningless by the onslaught of forces determined to manipulate our old friends, fear and greed. As Doug Kass said quite often, "the market has no memory from day to day".

Unlike many pundits, with their confident predictions, I have absolutely no idea what 2016 will hold for us. There are major themes like a more hawkish Fed, the turmoil in oil and commodities, the Presidential election and the economic struggles in China, which will obviously move the market substantially at times, but I'm not even going to try to imagine how those things will play out.

What I know for certain is that we will have a year of ups and downs. There will be some great opportunities to profit, but it will require that we stay ever vigilant and react quickly as conditions shift. It may end up being a poor year for the indices, but it won't much matter to astute traders that keep working at it day after day.

The key to making money in the market isn't the ability to predict the future. The key to making money is the process. You have to attack it one day at a time and do your best to make the right decisions. It doesn't much matter where we end up if you navigate the journey in an effective way. You will have bad luck and good luck and will make plenty of mistakes, but if you stick to the process and embrace the obstacles that you face you will make progress.

Worrying about what will happen to the market in the year ahead is a waste of time. We can't control what happens. We can only control our reactions, and if we do a good job of that on a daily basis we will be successful. 

I'm optimistic and excited about the opportunities that lie ahead of us. I don't know what will happen, but I do know that we can be successful if we do our work each and every day.

The indices are doing little this morning and the action will be thin and choppy. We'll likely have some wild action in the last few minutes of trading, as last-minute adjustments and mark-ups are made by fund managers. There should be a few small caps of interest today, but this is market that is driven by factors that have little to do with the worthiness of an individual stock.

It is a very difficult market to trade and it may not be worth it, but we'll see if we can pick up at least one good trade.

If you are heading out early, I want to wish you a fantastic new year. I hope you'll join me in making it the best year ever.

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