While most pundits came into 2014 looking for the year-end ramp to continue, stocks have started off the New Year on the wrong foot so far. And with so much attention paid to the first five days of January ("As the first five days go, so goes January" and "As January goes, so goes the year") the key question coming into 2014's first real week of trading is if the environment has taken a turn for the worse.

The short answer here is it that it is simply too soon to tell for sure. However, we have been yammering on for a while now about the idea that investors may need to have their risk management systems switched to the "on" position at some point in the first quarter. Thus, the action in the coming week ought to be quite telling.

But given that there is a lot of data to review and a lot of algos to be run before the picture becomes clear, this is probably as good a time as any to finish up the series on the lessons investors should have learned in 2013. So, without further ado...

In the First Installment

In the first installment of "The 13 Things Investors Learned in 2013," we explored the fact that the U.S. stock market was the best/only place to be last year. We talked about the idea that the intense crisis-driven dives that had plagued the market for the previous four years failed to materialize in 2013 as "no new crisis meant no meaningful correction." Then we touched on how sentiment had become incredibly negative at the start of 2013. And finally, we talked about the current role of HFT in the stock market game.

Then In the Second...

In the second installment of lessons learned in 2013, we looked at the idea that the macro crowd got it all wrong again last year and how important it is to recognize that the macroeconomic picture isn't always a good guide to investing in the stock market. In addition, we talked about how "diworsification" plagued most investors in 2013 and that "setting it and forgetting it" as a portfolio strategy is a thing of the past. Next, we talked about how the QE programs from the central banks of the U.S., the UK, and Japan have pumped massive amounts of cash into the financial system and that a big slug of that freshly minted money found its way into stocks in 2013. And finally, we reviewed a weekly chart of the stock market over the past five years and reminded readers that this indeed is what a bull market looks like.

Next up, we'll look at how important it is to never underestimate the power of the consumer, how Twitter has become the new ticker tape, how "tapering isn't tightening" when Bernanke's in charge, and the idea that the "alligators" are coming. So, let's get to it.

10. Never Underestimate the U.S. Economy

One of the most valuable lessons investors need to learn is that we live in the greatest country in the world. In addition, it is vital to recognize that the U.S. economic system is second to none. As such, unless there is some crisis that threatens the globe, it is usually a good idea to avoid becoming/staying overly negative on the economic prospects of the U.S. - No matter what the "masters of the universe" are saying on a daily basis.

You see, more than two-thirds of the U.S. economy is driven by the consumer. And if there is one thing that investors can count on it is that spending time at the mall is an American pastime. So, again, unless there is some crisis keeping everyone holed up in their "man caves" and worried about their jobs, understand that John and Jane Q. Public will eventually return to their shopping routine. It's just part of our culture.

11. Twitter is the New Ticker Tape

Twitter (NYSE: TWTR) has been around for quite some time. However, in 2013 TWTR came public AND savvy investors learned that Twitter is the new ticker tape. While Twitter won't replace your research department or a professional news feed, if investors need a fast answer to why the S&P suddenly popped or dropped 1 percent, Twitter has become the go-to place.

In fact, most of the day's market action can be summed up in one or two tweets. Some of the best folks to follow for market action include: @BenzingaPro, @Reuters, @WSJ, @ConvertBond, @MichaelSantoli, @EamonJavers, @Zerohedge, @Bespokeinvest, and of course, yours truly: @StateDave.

12. Tapering isn't Tightening When ZIRP is Around

2013's stock market only offered one real entry point as the lone pullback exceeding 5% occurred in May/June. If you will recall, this was the "taper tantrum" where stock and bond prices dove in response to Ben Bernanke's first mention that the FOMC might consider tapering their QE bond buying at some point in the future.

While the bears argued that the Fed's tapering of bond purchases would mean less demand for bonds (and higher yields as a result), it turns out that investors were wise not to fear the taper. Well, at least not right now anyway.

Yes, it is true that tapering QE will mean less demand for bonds. And yes, this "should" cause rates to rise a bit. However, Gentle Ben threw investors a curve ball when the taper was announced by also saying that the Fed was going to stick to its zero interest rate policy (aka ZIRP) for longer than previously anticipated. And while bond yields have been steadily rising since November, the key is that "Maestro Bernanke" managed to taper AND keep the markets from freaking out. Impressive. (Here's hoping that Bernanke's successor will achieve similar results over the next couple of years as the Fed begins to exit its stimulative policies.)

13. The Alligators Cometh (Probably)

Finally, a lesson that investors may want to heed - at least for a while - is that strength tends to beget strength in the markets. Therefore, the asset allocators (aka "the alligators") may be coming to a stock market near you very soon.

The key here is to understand how the asset allocators work. For example, a great many "alligators" rebalance their portfolios on a quarterly and/or annual basis. While this makes little sense from many perspectives, this crowd uses the calendar to make decisions on where to be invested. And what has been the best place to be invested lately? Oh, that's right, the U.S. stock market. So, any alligator programs that use any kind of relative strength work are going to need to beef up their exposure to stocks - especially U.S. stocks.

The bottom line here is simple as a shift to stocks by the alligators could cause more stock buying in the near term. Perhaps this will result in the market continuing to power higher. Or maybe this buying will wind up helping to cushion any corrective action. But if the alligators are indeed coming, understand that they won't wait very long to buy.

Tomorrow, we'll take a look at what the cycles have to say about January 2014. Stay tuned.

Looking for Guidance in the Markets? We can help...

The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

The Insiders Portfolio: If you are looking for a truly unique approach to stock picking - Check out The Insiders Portfolio. We buy what those who know their company's best are buying - but ONLY when they are buying heavily! P.S. The Insiders is up over 30% in 2013 and has nearly doubled the S&P 500 since 2009.

The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

The Top 5 Portfolio: We keep things simple here by focusing on our five favorite positions. This concentrated stock portfolio employs a rigorous custom stock selection approach to identify market leaders. Risk management strategies are built in to every position.

All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

Turning To This Morning... Traders appear to be ignoring the frigid temps as well as the big declines seen in China and Japan overnight on this first real day of trading in 2014. Instead, the early action in the U.S. appears to be mirroring the modes gains seen in European bourses. In particular, Spain's Services PMI showed impressive strength. Futures in the U.S. are currently pointing to a modest gain at the open.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets: 
- Japan:      -2.35% 
- Hong Kong:  -0.58% 
- Shanghai:   -1.78% 
- London:     +0.02%
- Germany:    +0.25%
- France:     +0.13%
- Italy:      +0.72%
- Spain:      +0.92%

  Crude Oil Futures: +$0.38 to $94.34

Gold: -$2.80 to $1235.80

Dollar:  higher against the yen and pound, lower vs. euro.

10-Year Bond Yield: Currently trading at 2.988%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +3.93
- Dow Jones Industrial Average: +41
- NASDAQ Composite: +2.87

Thought For The Day...

"Success is simple. Do what's right, the right way, at the right time." - Arnold Glasow

Are you getting all the market research you need?

Remember, you can receive email alerts  for more than 20 free research report alerts from StateoftheMarkets.com including:  

• State's Chart of the Day - Eeach day we highlight a top rated stock with a positive technical setup
  
• The Risk Manager Report - Stay in tune with the market's risk/reward environment
  
• The “10.0” Report - These are the REAL best-of-breed companies
  
• The Insiders Report - See what the people who know their company's best are buying
  
•  ETF Leaders Report - Looking for the top performing ETF's? You've come to the right place.
  
•  The SOTM 100 Portfolio - The top rated stocks in each market sector
  
•  State's Market Models - Each week we quantify the "state of the market" with a series of models
  
•  The Focus List - Think of the focus list as your own private research department. We do all the work and highlight our top picks each trading day

Our Mission Statement:

At StateoftheMarkets.com, our goal is to provide everything you need to be a more successful investor: The must-read headlines, market commentary, market research, stock analysis, proprietary risk management models, and most importantly – actionable portfolios with live trade alerts.

Finally, we are here to help - so don't hesitate to call with questions, comments, or ideas at 1-877-440-9464.

Follow on  Twitter: @StateDave

---

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.