Rather than provide a variant view at the end, this is going to be the topic of my entire piece today.
Anyone that reads me frequently knows that I'm a skeptic and a bear by nature. I've been calling for the market to correct since it first hit 15,000 much earlier in 2013. Since then, the market has still run up with momentum, and my "better safe than sorry" position has been left out in the wind to dry - so far.
Although I always advocate taking profits, and there's very few times more than right now where it would be savvy for people to cash in; especially after a wicked 2013, I try to force myself to see the other side of the issue as much as I can. Along those lines, I tried to convince myself of what it would take for the market to stay bullish in 2014, and this is what I came up with.
The first thing that we'd need in 2014 is some type of reasonable consistency from the boobs in our government. No, I'm not referring to the Federal Reserve, I'm referring to the government at large. Some of the major pullbacks for the market over 2013 were a direct result of the government - the shutdown and threats of defaulting on our debt.
Remember headlines like this one, and what they did to the market?
Additionally, many thought the Federal Reserve would be the sole force to dictate the way things would go in 2014, with most people thinking the Fed would taper and the market would pull back from some of its gains. Instead, just the opposite happened: the Fed started to taper just last week, and the market loved the news, skyrocketing intraday when it was announced.
The main reasoning for this is that people are seeing the Fed backing out as a macro based sign that the economy as a whole is starting to recover. If this is the sentiment heading into 2014 and we're simply injecting a new type of confidence into the markets, there's a serious chance things could stay bullish the Fed continues to taper.
And, lest we forget that Janet Yellen is on her way in to continue babysitting the economy. Would it have been my first pick for the new head of the Fed? Absolutely not. Is there a good chance that we're going to be facing QE-infinity going forward? Yes. Is it definitely going to ease the fears of "smart money" and market sentiment going forward? More than likely.
Yellen has publicly stated numerous times that she's in no hurry to reverse government stimulus. This gives immense comfort to current investors today, while possibly screwing future generations and definitely giving Ron Paul a potential cardiac arrest.
This chart shows exactly what happened to the Dow when it was announced late in the day on the 18th that the Fed would begin its tapering:
So, if this is the sentiment heading into 2014, it's likely that we're just in the meat of this bull market when many bears are predicting that we're at the end - or that the end is near; myself included. In the grand scheme of all bull markets, our current one makes it to about the middle of the table, falling far short of the run that went from 1990 to 2000; or even the run that went from 2002 to 2007. We're approaching that five year mark now.
Another point that companies like Bank of America (BAC) have been pointing out is that the market's growth doesn't have to necessarily stem from the top line. BAC has shown us that even as revenues wane, you can still squeeze the profit out of this market through running the fundamentals effectively, planned cost cutting, and keeping your business on a short leash.
Also, it's important to make sure any correction at the beginning of 2014 isn't mistaken for a bear market - they are sometimes healthy parts of bull markets and it wouldn't surprise me to see a pullback coming out of a stellar December.
One thing continues to be sure - confidence in the market continues to grow. You can tell by the valuation that the public has put into companies. It's just going to pose the question: is this confidence a sign of bullish things to come, or the beginning of the bagholders?
Regardless of what direction you think the market is heading into 2014, make sure to use this as an opportunity to review your portfolio going into a new year. If you've been exceptionally profitable in 2013, why not lock some of those in and reposition?
Although these bullish scenarios are nice for perspective, I remain cautious moving into 2014, and suggest investors keep their minds open as to what's possible in the coming year; and act accordingly.
In the market, when one door closes, another one opens. Look at the chances that realizing some of your profits can give you with regard to repositioning. First, being liquid offers you incredible flexibility. Second, getting ready to potentially re-invest forces you to sharpen up your due diligence skills and perform DD. Third, it leaves the window of opportunity for continuing to gain on your already profitable trades as time progresses.
Cashing out and realizing some gains offers a lovely way to step back and really take a birds-eye view of the market that you may be missing.
Realizing some gains and stepping back offers some opportunity to take a look at broader market trends, potentially allowing to you weather any short term bumps before finding a chance to reinvest.
Additionally, in order to gain perspective or hedge, you don't necessarily have to liquidate your entire position.
I wish everyone the best of luck in the coming year, 2014 - to life, liberty, health, wealth, and the pursuit of happiness.