2012 Look Forward – Market Forecast

2 Jan

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The #1 thing I learned about the markets is that anything can happen. No matter what the data says should happen, doesn’t mean it will happen. There is no one on the planet who can predict the market to 100% certainty so I won’t claim to do so here. What I would like to do is take a look at 2012 and look at some possible scenarios for the year ahead.

As talked about on the Dec 19th watch list, we have been in a wedge formation on the daily chart for the past few months. If we can break this wedge to the upside we should see a nice trend develop which would make for some fantastic trading opportunities.

S&P500 Wedge Fall 2011

Three Scenarios for the 2012 Markets

Scenario 1: If a breakout does occur, we will be targeting prior 2007 highs at the 1575 level on the S&P500. It is also an election year so draw whatever conclusions you like from that piece of data.

Scenario 2: If we fail to breakout to the upside, but instead drift sideways while the Euro Debt crisis continues to unfold, trading opportunities will not be as cut and dry and we would continue to see smaller price moves. This would be the most unlikely scenario because the market has been converging on the apex of the triangle. Building pressure if you will.

Scenario 3: This brings me to the 3rd possibility a sell off. There are a lot of factors that could cause such an event, one of them being the slow growth of GDP in the US. We have seen much small growth levels out of this recession as compared to others. If investors continue to sit on the sidelines and European fears spook investors already in the markets, we could see a move lower back to the S&P 1000 level.

Stocks to Watch on 1/3:

Longs: HSTM, MSG, RNR

Shorts: CRM, ESI, RUE

Whether you trade stocks or options, you can use the TJMacTrading watch lists as a place to gather trade ideas. We archive all the old watch lists for you to look through as well.

Help in Understanding the Bigger Picture

Regardless of each scenario, the market has shown to rise on average of 8% per year dating back over 100 years. Will this time around be different? We really won’t know, but if the markets go to zero, we all lose therefore, I still hold long term positions in the SPY, DIA, QQQ, and IWM. With a small weekly contribution to this portfolio and the continued reinvestment of dividends it’s pretty amazing how a flat year as we saw in 2011 can still have a very positive impact on your bottom line.

I see value in investing, but I also find it profitable to trade a portion of my portfolio as I do with stocks, options, and futures. At the end of the day though it’s about making money and generating an asset base to draw income from in the future. Make 2012 the year you really take control of your finances, limit necessary expenses, take advantage of any 401(k) matching opportunities at work and contribute to (or setup) a retirement account.

What to do From Here in 2012

So, Why am I talking about investing on a trading blog? All these little mechanisms of building our net worth contributes to our ability to trade objectively. The larger our net worth grows, the smaller our risk capital per trade becomes. This helps us trade better in a number of ways the most important being the comfort and security level we feel having our finances in control. Not depending or hoping that THIS will be the trade that makes you rich.

Trading is all about managing our emotions and it is a very challenging game. Keep things simple, minimize your expenses, and don’t forget about the bigger picture. Trading is just another way to bring in $ which we will then use to pay for the things that help us live a fulfilling life.

 

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