Coolhand's Market Analysis

First, congratulations to those who were able to tack on gains of at least 5% this year. That would be a pretty decent return given that the best performance among our TSP funds was the G fund in 2015; and that only returned 2.05%.

I managed to beat all of the TSP funds except the G fund this year with what appears to be a mediocre return of just 1.77%. I am not particularly happy with that number, but when I look at the auto-tracker, that return still puts me in the top 30% of those being tracked (excluding premium members). So why was it so difficult to make money last year? Let's look at a 1 year chart of the S&P 500 to get a clue.



I drew two horizontal blue lines that capture the main trading range for the S&P 500 in 2015. We can see that the index peaked way back in May and tried to tag its previous high in June and July, but fell a bit short. The tops have been more shallow since. There was some spikes lower to the 2000 area on a few occasions, but price did not remain at that level for long before moving back into that trading range. The one main exception was the big sell-off in late August and then a double bottom dip in late September. Aside from those buying opportunities, most of the range vacillated by about 4% at best, which is about the distance between those two horizontal blue lines.

I think many of us, myself included, were expecting an upside breakout on the indexes by the end of the year. That likely kept many of us invested as price approached levels of resistance on numerous occasions over the course of the last 6 months or so. Of course when that didn't happen, many of us simply rode price back down to the lower end of the range.

There are many reasons given for the market's largely sideways movement by any number of sources in the media. I think it comes down to a lack of liquidity injections by the Fed among other factors. Liquidity spent quite a bit of time in contraction since July as the below chart shows.



Any point under the zero line means that market liquidity is in contraction. That means money is leaving the market. Liquidity closed out the year in low contraction. You can see that the largest dips in August and September correspond to the big dips in the S&P 500 chart above. Liquidity movement is a huge influence in market direction, but it's not very easy to predict.

I for one am glad 2015 is over and look forward to 2016. But there remains a lot of challenges for not just our own stock market, but global markets as well. Those challenges create what is called a "wall of worry" and that usually helps the market bias to the upside. But I do not get the impression that the big money (not the Fed) trusts this market enough to take big risks on the upside (or the downside for that matter). Many sentiment surveys show a lot of fence sitters (neutral traders) and have for some time. This means many are probably hedged against both the upside and the downside of this market. That helps keep the market in a trading range too.

So that's my relatively simple point of view on why it was so hard to make money last year.

Now we enter a new year and the month of January often sets the tone for the year. It did last year as the S&P was down in January and finished 2015 with a modest loss of 0.7%.

If you are wondering why the C fund, which tracks the S&P 500, finished higher than the index itself, it's because dividends were paid to those who have or had a position in the index.

So let's hope for a better year in 2016. Just keep an eye on January's performance.

Happy New Year to all! I wish everyone good health and prosperity!