The holiday season is here and a volatile 2014 is coming to a close. Be prepared to pick up quality situations during tax loss selling season and benefit off of a powerful January effect rally.
Recently we heard the comments from Fed Chairwoman Janet Yellen, which appeared to be dovish.
Crashing oil prices and a rising US dollar will put a halt to any interest rate increases from the Fed. Weak holiday sales and increasing unemployment in 2015 are a possibility especially as I expect layoffs in the once booming fracking sector. Equities are rallying and following tax loss selling season the TSX Venture which is hitting decade lows may experience a major bounce due to the January effect. The January effect often benefits small cap beaten down situations as large investors reposition for 2014.
The divergence between the S&P500 and the TSX Venture and XAU has not been seen since the late nineties. At that time similar to today no one wanted to touch gold miners or natural resources and favored the US large caps and tech names. That was a big mistake because after the dot com crash, the junior miners outperformed the large equities for about seven years until the credit crisis hit the world.
At that time in 2008, Central Banks and Governments printed money like crazy to solve the bad debts and save the big banks. This led to a concurrent rally in equities and commodities from 2009 -2011.
In the middle of 2011, the US cut back on QE while Japan and Europe accelerated currency debasement. This led to a flight of capital to the U.S. dollar and equities and out of commodities especially copper, oil and precious metals. So from 2011 until today we have seen a decoupling of a rising US dollar and equity market with a declining natural resource market. This has not been seen since the late nineties.