Daily Gains Letter

Early Preview: My Stock Market Outlook for 2015

By for Daily Gains Letter |

Sneak Preview Stock Market Outlook 2015I will be formulating my complete stock market outlook for 2015 in a couple weeks, but at this time, I’m feeling somewhat uneasy. This year has turned out to be what I was expecting back in January 2014, with stock market trading being characterized by uncertainty and hurdles.

Small-cap stocks are heading for their worst performance since 2011, when the Russell 2000 fell just below six percent. The index is languishing, with a loss of one percent after the nasty down week we just experienced.

The selling was, in my view, somewhat driven by panic selling and capitulation. It gave stock market investors reasons to dump positions and take profits prior to year-end. The selling last week managed to wipe out five weeks of stock market gains for the DOW and the S&P 500.

The price charts are currently displaying an uneasy picture of the stock market. The DOW and S&P 500 have almost declined to their 50-day moving averages (MAs), which will each be a key technical point to watch. The Russell 2000 could take out its 200-day MA, based on my technical analysis.

Russel 2000 Small Cap index

Chart courtesy of www.StockCharts.com

The big risk is the failure to hold at the key moving averages, which, as I mentioned, could result in additional downside moves due to the lack of strong technical support until we hit the 200-day MA.

What the stock market needs is for the slide in oil prices to halt at the current $57.00 for West Texas Intermediate (WTI) oil as of Monday. The historically higher-priced Brent oil from the North Sea managed to recover to $60.00 after declining below that level.

Some pundits feel oil could drive down towards $50.00 a barrel or below. With oil stocks accounting for about 20% of the S&P 500, more downside moves are likely, should oil continue its free-fall. Oil has declined to $57.00 with no bottom in sight, so there could be more weakness. The oil cartel, the Organization of the Petroleum Exporting Countries (OPEC), suggested the group could ride out the weakness and said that it does not plan to cut production. The oil cartel also blamed part of the oil weakness on speculation, and not simply on supply and demand metrics.

Light Crude Oil - Spot Price

Chart courtesy of www.StockCharts.com

While everything seems out of tune for the stock market at this time, it’s not unusual to see bouts of selling during times of rising stock prices. Just think about it: we haven’t had a correction of 10% for the S&P 500 for a very long time, so don’t let the current volatile trading make you run to the exits. While I’m not saying the worst is over, I do look at additional weakness in the stock market as a potential investment opportunity.

Be very careful with the higher-beta and momentum stocks until we see some buying support enter into the stock market. Small-caps carry the highest risk.

Watch for year-end tax loss selling and profit-taking by both institutions and retail investors.

As we enter the final last few weeks of the year, the potential of a Santa Claus rally is still unknown. Although I doubt we’ll see a significant rally, strong domestic economic data could give the stock market a lift. So, be alert and have some cash ready, as I still believe the stock market will head higher in 2015—unless, of course, the global economic situation worsens, namely in China and the eurozone.

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