It appears that Santa Claus has most definitely left the building.
After managing a year-end rally for much of December, the market weakened heading into the New Year and a combination of European concerns and declining oil prices sent stocks down nearly 2% to a two-week low today.
While this is a rough way to start 2015, it doesn’t raise any new red flags nor does it mean the market will be down all year. In fact, we’ve been preparing for this kind of bumpy January over the last few weeks as we knew larger macro stories would likely dictate market direction. That’s why we moved to lock in year-end profits and trim those names that were vulnerable to larger volatility.
Unfortunately, we’re likely to see volatility continue as richly valued stocks, uncertain world economies and declining oil prices remain big question marks for Wall Street. Until there is some clarity on these issues, the bulls will have difficulty taking back the reigns. Another question mark for 2015 is how earnings will hold up after last quarter’s performance, so volatility may even out a bit when the next reporting season starts up in a few weeks.
In the near term, we could see a test of the S&P’s recent 1,972 bottom, but ultimately I believe the market will begin to firm up later in the week in anticipation of a favorable employment report on Friday.
In the meantime, we’re prepared for what the market may throw our way.
Our stocks are holding up a little better than both the S&P 500 and the Russell 2000. The fact that both of those benchmarks are down in unison today makes me think today’s move is a matter of program selling in the first full week of trading in the New Year. Precious metals are doing well, which lets Silver Standard Resources (SSRI) act as a bit of a hedge on our other positions, closing up 2.4%.
We’ll talk more about our strategy for the year ahead in Thursday’s update, but a key part of it will be scooping up quality companies on pullbacks and that’s exactly what days like today can be used for. If you’re looking to put money to work, I recommend starting with our current Top Buys and most recent recommendations. As always, I remain on the lookout for new opportunities and will be in touch with a Flash Alert whenever the right one crosses my screen. In the meantime, feel free to email me at service@kramersbreakoutstocks.com with any questions about the market or our Buy List.