What is the biggest trend in the markets to watch for 2012 and how can investors prepare for it?
Q&A With Jeffery Hirsh, Editor-in-Chief of Stock Trader’s Almanac
Outside of the four-year cycle, sovereign debt concerns remain a major obstacle to markets in 2012. Beyond the threat of credit rating downgrades, any further austerity measures enacted to balance budgets could potentially cause severe damage to what has been a fragile economic recovery. What differentiates the Stock Trader's Almanac approach to investing from other approaches out in the market?
Beyond our 45 year history, our research of seasonal patterns and cycles does not bind our readers to one corner of the market. Our research can be applied in nearly any trading strategy. Whether trading individual stocks or options on an index futures contract, our analysis can provide traders with an edge. Quote: "If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends these forces will really have their say." —Edson Gould The Almanac is often quoted in the media and is famously known for a few key indicators that you follow. What are these indicators and how can investors trade them?
Two of our widely known indicators are the January Barometer and the "Best Six Months". The January Barometer simply states: "As January goes, so goes the year." The January Barometer can only be applied to markets going back to the passage of the 20th Amendment to the U.S. Constitution, the "lame duck" amendment. It made January a politically significant month in addition to the importance of being the first month of the New Year. Strength in January is a positive sign that can be used to increase long market exposure. Down Januarys on the other hand are negative omens. Every down January since 1950 was followed by a new or continuing bear market, a 10% or greater correction, or a flat year. A substantial amount of our research and trading advice revolves around the market’s "Best Six Months". What our research has shown is that the market makes the bulk of its gains in just six months of the year, November through April, hence the roots of "Sell in May". Traders and investors can enjoy the bulk of the gains with half the risk of buy and hold. The key to the “Best Six Months” for investors is to look for technical buying opportunity in October ahead of the usually bullish period and a selling opportunity in April or May. Last year you came out with Super Boom prediction for a coming market boom. Has the fluctuating market changed this prediction at all? Will the 2012 Almanac discuss this prediction?
Yes we do cover the prediction in the 2012 Almanac and No the prediction has not changed. In our 2011 Annual Forecast sent to our subscribers in December 2010 we forecasted an early 2011 DJIA high in the 13000-14000 range. DJIA peaked in April at 12810. We also forecast a correction of 15-20%. From its April high to its October low, DJIA declined 16.8%. For full-year 2011 we forecast gains of 5-10% for the DJIA, which we still expect. This forecast was integrated into the Fifteen Year Projection chart found on page 74 of the Stock Trader’s Almanac 2012
. Trends to Watch and Trade in 2012 By Jeffery Hirsh, Editor-in-Chief, of Stock Trader’s Almanac Presidential Election Years 2nd Best in Four-Year-Cycle
It is no mere coincidence that the last two years (pre-election year and election year) of the 44 administrations since 1833 produced a total net market gain of 718.5%, dwarfing the 273.1% gain of the first two years of these administrations.
Presidential elections every four years have a profound impact on the economy and the stock market. Wars, recessions and bear markets tend to start or occur in the first half of the term; prosperous times and bull markets, in the latter half. After nine straight annual Dow gains during the millennial bull, the four-year election cycle reasserted its overarching domination of market behavior the last 11 years. However, 2008 was the worst presidential election year on record. Only Two Losses In Last Seven Months Of Election Years
Regardless which Party is victorious, the last seven months have seen gains on the S&P 500 in 13 of the 15 presidential election years since 1950. One loss was in 2000 when the election's outcome was delayed for 36 tumultuous days, though the Dow did gain ground in the last seven months of 2000. Financial crisis and the worst bear market since the Great Depression impacted 2008. First Five Months Better When Party Retains White House
Since 1901 there have been 27 presidential elections. When the Party in power retained the White House 16 times, the Dow was up 1.5% on average for the first five months, compared to a 4.6% loss the 11 times the Party was ousted. Since 1950, retaining the White House 7 times brought an average gain of 1.9% compared to –0.1% the other 8 times. War Can Be A Major Factor In Presidential Races
Democrats used to lose the White House on foreign shores (1920 WW1, 1952 Korea, 1968 Vietnam, 1980 Iran Crisis). Republicans on the other hand lost it here at home (1912 Party split, 1932 Depression, 1960 Economy, 1976 Watergate). Homeland issues dominated elections the last three decades with the Republican loss in 1992 (Economy), and the Democratic loss in 2000 (Scandal), and the Republican loss in 2008 (Economy). As we've learned over the years, it all depends on who the candidates are in 2012. Market Bottoms Two Years After A Presidential Election
A takeover of the White House by the opposing party in the past 50 years (1960, 1968, 1976, 1980, 1992, 2000, 2008) has resulted in a bottom within two years, except 1994, a flat year. When incumbent parties retained power (1964, 1972, 1984, 1988, 1996, 2004) stocks often bottomed within two years later as well, except 1984 (three years, 1987) and 2004 (one year, flat 2005). Whatever the outcome in 2012, we could see a bottom by 2014. Only Six Election Year Declines Greater Than 5% Since 1896
Presidential election years are the second best performing year of the four-year cycle. Incumbent parties lost power in five of the six years with declines greater than 5%. Five losses occurred at the end of the second term. FDR defeated Hoover in 1932 and was re-elected to an unprecedented third term as WWII ravaged Europe. Election year 2012 marks the end of the incumbent party’s first term, improving the prospects for a solid year.
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