Monday, January 2, 2012

Happy New Year!

The trading environment in 2011 was one of the most difficult in many years.  It was somewhat similar to 2004, but with larger price swings.  It was also more difficult than 2010, which at least offered a couple of decent trends.  It is not likely that 2012 will be more of the same despite the consensus opinion.  Instead, 2012 will most probably follow the typical election year pattern with corrective action into March and May to complete the larger correction that began in May 2011.  Afterwards, the trend should be mostly up into the end of the year.

What is most perplexing at the moment is the disparity between investment advisors and the general media.  Investment advisors are mostly bullish at the moment, which is in sharp contrast to the tenor of media stories that have focused on the seemingly dire situation in Europe and the US budget problems.  This suggests that although the trend is up for the moment, the sentiment of investment advisors will need to return to a bearish outlook before a solid trend can emerge.  This should be the job of wave (Y) [not labeled].

Currently, the market is in wave Y of (X) up.  Whether wave Y completes immediately in the first two weeks of January or there is another shakeout first, the target zone near 1310 to 1320 should be hit either way.  Then a 4 to 5 month correction in wave (Y) should follow.  There are many who are calling for a major bear market to begin at any moment from a variety of perspectives, but the problem is that not all markets are aligning with the same wave count as was the case in 2007 and 2008, and also unlike 2007 and 2008 the sentiment of the general public is far more negative.  I think we will see an erosion of sentiment in the beginning of the year, which will allow the market to climb the proverbial "wall of worry."

I will be looking to exit short and intermediate term long positions at the target zone in January.  I will then be looking for shorting opportunities.  I will be onto long term positions into the expected 2013 or 2014 long term top.

This promises to be an exciting year for those who have not given up on basic trend following methods.  If the expectations do not materialize, we may see a pattern inversion like we saw in 2008, but there will plenty of time to change gears if that is the case.

I wish you all the best of trading success in the coming year.

1 comment:

green investments said...

Craig: I think this will be a year where macro events really determine trading success. It will really be like a risk on/risk off, especially related to Europe and the Euro. Depending on what happens with the next Merkosy summit on Monday, you will either see relief/risk or the opposite. I also think anytime the Repblican in the presidential race (most likely Romney) looks like he is well positioned to win, the markets will be very positive about that as well. Let's hope for the best this year! GI