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2015 Market Outlook

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by Gavin in Blog, Market Updates
December 9, 2014 0 comments

With the end of 2014 almost upon us, it’s a good time to start looking ahead to 2015 to see what could be in store for us. I decided to reach out to some of my favorite market technicians to get their thoughts on the upcoming year. Here’s what they had to say:

NIC CHAHINE

What is your general outlook for 2015?

Fundamentally nothing major has changed:

  • The US recovery is still on track and is best globally
  • Eurozone is still mired and can’t agree on a QE to spruce its economies. However they are closer now than ever and consensus is that EQE is imminent. So bears need to make a little more upside room for a rush to buy on the event.
  • China growth though impressive is still in doubt. Especially that they are now doing full blown QEs. This should worry bulls a little since the worry is that the Chinese Central Bank may see ominous data never shared. If so, then there will come a time where they can’t hide the real picture.
  • Japan’s experiment is still endangering one of the largest economies on the planet. This has the potential to end ugly.
  • The threat of a major financial hiccup from Asia is still a realistically scenario. The source of which can be either of the aforementioned scenarios or several others looming.
  • The global central banks are still in it for as long as we need them and beyond. The global balance sheets will force action regardless of popularity or willingness. Meaning that the Fed’s hands could be forced into action one way or another and without warning regardless how they feel about it.

So I will be trading 2015 similarly to how I started 2014: Shortable pops and everpresent mini correction scares looming. Absent major negative disaster headlines we are likely to continue to have mini concentrated corrections like we did in Small caps and Technologies (Chips) on occasion in 2014 for example. These will let out enough steam to stave off market-wide 20% corrections of old. This is not to stay that major corrections are impossible, but those may require a true black swan event to cause them. Fundamentals and global central banks too committed to the flotation mechanisms that provide artificial lift.

Where will the S&P 500 close on Dec 31, 2015

My style of trading requires me to know where the S&P will NOT be so I can sell risk out side of those regions. Consequently, I will be selling credit call spreads above 2200 in SPX and watch time work for me. I will hedge these positions with well placed credit put spreads on a monthly and/or weekly basis to raise my break even points along the way. The 2200 level is based on what I see in December and I may adjust it as we near January.

Best long idea for 2015: Baba

Best short idea for 2015: Gopro, Tesla

Where will gold close on Dec 31, 2015: GLD 121.5

Where will the USD Index close on Dec 31, 2015: USDOLLAR Dow Jones FXCM Dollar index: 11130

STEVE BURNS

What is your general outlook for 2015?

Bullish on equities, lower oil prices will put money on the bottom line of corporation with lower transportation costs. The continuance of the central bank fueled secular bull market with higher all time highs across all stock market indexes.

Where will the S&P 500 close on Dec 31, 2015 – 2,400

Best long idea for 2015 – $BABA

Best short idea for 2015 – $TSLA

Where will gold close on Dec 31, 2015 – $1,000

Where will the USD Index close on Dec 31, 2015 – 100

CHRIS EBERT

What is your general outlook for 2015?

The Bull market, to me, appears to be showing signs of age. There was a time during October of 2014 that at-the-money Covered Call and Naked Put option trades on the S&P 500 ($SPY) expired with losses. While weekly or monthly expirations are prone to such losses on a minor pullback, I generally take notice when longer expirations start to suffer, which is what they did in October 2014 for the first time in three years. In the past, such performance has been followed by a deep correction, enough to be considered a Bear market, in the S&P within a few months.

I don’t discount the dedication of the Fed and its new chair, Janet Yellen, to use a pullback in the S&P as an excuse to extend accommodative policies in 2015. While it is difficult to know what the Fed might actually do, the effect of additional accommodation in 2015 would likely be to minimize the duration of any Bear market, should a Bear market ensue. Therefore, my overall expectation for 2015 is for a major pullback, possibly meeting Bear market criteria, followed by a retracement right back up to where the S&P 500 stands today. I would expect the S&P to end 2015 near the 2200 level.

Best long idea for 2015

I expect trading to be more difficult, in the sense that trends will be more violently affected by whipsaw in 2015, just as whipsaw was more violent in 2014 than it was the prior year. Thus, my personal choice for whipsawing markets is to use “costless collars” on trades whenever possible. My choice for going long in 2015 would be to buy the $SPY (currently @210 as of the end of 2014) then collar it using 10% out-of-the-money options that expire in December 2015 (buy 190 Put, sell 230 Call). I’d be giving up any gains in excess of 10% next year, but I’m not expecting a 10% increase in the S&P anyway, so I’d probably be tempted to take profits at such levels. Selling the Calls helps me avoid the temptation to take profits. Of course, if there is a Bear market in early 2015, I’d take the profit on the Calls and uncap my upside potential.

Best short idea for 2015

For going short in 2015, I would simply use Put options on $SPY. With implied volatility now near historic lows, Put options just don’t get as inexpensive as they are right now very often. I’d simply buy a load of Puts, with distant expirations, and out-of-the-money strike prices on $SPY, essentially gaining exposure to any major broad-based sell-off. Using OTM strikes and distant expirations (perhaps December 2015) not only exposes the Puts to Delta gains from downward moves in the S&P, but also Vega gains if there is a spike in the VIX, as one would expect the VIX to climb if the first Bear market in more than three years was to begin. I would be looking to book profits quickly, if there are any, by closing the Puts, opening long stock positions, or selling Puts, since I would not expect a Bear market to last more than a few months, given the propensity for central banks to intervene.

Where will gold close on Dec 31, 2015

Ordinarily I would expect the price of gold to skyrocket under the current environment in the U.S., given the very real, very substantial amount of consumer price inflation. However, there seems to be more manipulation of the markets today. That’s not to imply that manipulation did not occur in the past, but that correlations that once held true are no longer so dependable as they once were. As a result I believe the price of gold is now less dependable. If the Fed fails to act on interest rates in 2015, especially if it’s hand is forced by a downturn in the U.S. stock market, the effect might be for higher inflation, which normally would bode well for gold. But I would expect the effect to be muted. Thus $1400 gold is what I might expect at the end of 2015.

Where will the USD Index close on Dec 31, 2015

The USD index, being subject to some of the same manipulation as gold, is also likely to have any moves become muted, in my opinion. With QE now a widespread phenomenon throughout major economies of the world, natural forces that might have once acted to move the USD index are now under the tight control of those in control of the QE. Without knowing their exact plans, it is impossible to know to what degree the USD index will be allowed to float naturally, and to what degree it will succumb to artificial effects of central banks. My best guess, but truly only a guess, would be for a slight rise, toward the 100 level for the USD index by the end of 2015.

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