AN IMPORTANT STUDY RESULTING IN 10 CLEAR EXPECTATIONS FOR INVESTORS IN 2013
On Saturday, November 17th, with the Dow closing at 12,588 on Friday, I reintroduced a study that led to a forecast of 13,500 or thereabouts being the closing level for the Dow in 2012. I received a bit of grief with respect to the study from the typical band of articulate incompetents. After all, the Dow closing near 13,500 from 12,588 meant a 7% plus run for the market in roughly 28 trading days. It also meant that the markets would have to rise through a period of governmental strife that has seen the word "cliff" used more times than when it was attached to the last name Huxtable. Difficult to fathom, at the time, I get it.
A couple weeks later we are not even halfway through December and the Dow has rallied to 13,155 or 4.5%. A short 350 point gap puts the Dow at the target for year end. Obtainable, without a doubt. Investors are now much less apprehensive to accept the idea. As confident as I was when I published the study on November 17th, I am just as confident now that the target will be obtained.
The study that resulted in my deriving this price target is one that should be referred to throughout 2013. The summary of the study is as follows: We are in a post-shock price period similar to the years following the 1987 crash. While the macro environment is quite a bit different than it was in the late 80's-early 90's, the psychological foundation among investors is not. There is little trust in the market. Investor's will remain skeptical of Wall Street. Protection of assets takes precedent over creating capital gains.
Furthermore, we are moving along the exact same trajectory point that caused the volatility, followed by the pinned type of grinding along the trajectory throughout the first half of the 90s. Major trajectory points, such as the one we are up against in the Dow, tend to have what can best be described as a mirroring effect. Price action tends to become repetitive in nature over certain periods in relation to the trajectory. If you look at this chart you can see the similarity in post crash markets of 1987 and 2008. This chart, from the same post on November 17th, also shows the similarities.
I don't expect this study to begin dissipating in terms of influence anytime soon. The Dow will continue to hug the trajectory throughout 2013. What does that mean for investors?
1. There will be no down quarters during 2013.
2. There will be no substantial up quarters in 2013.
3. 2013 will be a very tedious grind up that will leave a majority of investors disinterested.
4.Volatility will continue to die.
5. Stock pickers will rule.
6. Short-term trading strategies will be dust.
7. Intermediate and especially long-term strategies will fare the best.
8. Hedging strategies will continue to provide break even results.
9. Investors won't care that the Dow is closing in on new all-time highs.
10. The expectation for a market collapse will be pervasive.
Validation of this study comes from how well it gauges the market. Thus far, it is off to a flying start. I expect 2013 to provide further validation.
