Monday, December 26, 2011

Year end summary of the Dow and stock market trends

This is my year end summary of the stock markets for the year and where I think what might occur in 2012. My first chart below is of thew Dow for the past 10 years on a monthly basis. As you can see below, for 2011 the Dow managed to stay between 11,000 and 12,800. Looking at the big drop in 2009, where we went all the way down to 7,000 on a monthly basis and 6440 as a low daily close.

It is interesting to notice the Volume chart for the Dow. We averaged about 600 Billion shares a month from 2002 to mid 2009. Since then we have had a significant drop to 380 Billion shares. So the rise from 7,000 was built on significantly less volume than the rise from 2002 to 2009, which was a Bull market rally. It looks to me that since 2009 we have been in a Bear Market rally, as the volume has been too low for a true Bull rally.

The key to watch on this Dow chart are the 2 red lines. We will need a breakout either to the upside or to the downside to determine longer term trends from this chart alone. However, looking at the Dow 25 year monthly chart, we get more clarity, as seen below.

I do still expect a drop below current levels during 2012. The Head and Shoulder patters or "W" pattern as I call it does point to lower lows going forward and limited upside potential.

Given the chart readings, the next thing to do is see if world events suggest a more optimistic or pessimistic view for 2012. We have a Presidential year election in November 2012 and we have had gridlock in the Congress in 2011. I don't see the gridlock easing and many issues including our own debt which must be dealt with as well as continually funding the government. The Unemployment scene isn't going to get much better because we have structural unemployment which will be around for a long time unless somehow we retrain workers in new skills to meet a more technological demand than typical blue collar workers have brought to the work environment. We also have the Supreme Court making a decision on President Obama's Health care bill legislation as to whether it is Constitutional or not.

Then we have the Sovereign Debt issues in Europe, the Arab Spring and new leadership in North Korea, a test of the government of Iraq to function without our military presence and then there is Iran's pursuit of Nuclear weapons. The Euro is in crisis and Russians are challenging Putin's grasp of the presidency there. And last but not least, we have all those who believe the world will end on Dec 21st 2012 because of the Mayan predictions.

Let's conclude with the fact that 2012 will have many volatility swings ands most likely testing the previous extremes of those swings. It is a year to be cautious with your financial assets. My belief is that we humans will do almost anything to avoid pain rather than to risk succeeding. Therefore, I believe it is wiser to be on that side of the investment strategy by being short from time to time. It is also wise to take profits sooner rather than being greedy and waiting for more profit before selling.

Good luck this coming year. Thanks for taking the time to visit my Blog. This new year marks 7 years of my blogging. I have had 79,000 visitors to my site in that period. Happy New Year!

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Blogger Minneloushe said...

Hi, Charles... Between TZA and BCON, I have no profits to take. Only losses. Whatever is ahead for Beacon, I hope something good comes - for the world, if not for me. Their technology still seems wonderful, even though I've lost all my savings. Gesh was absolutely right, and I wish I'd listened to him.

We'll see if I lose all my remaining money on TZA. So far it is nowhere near what I paid for it.

In a strange sense, I'm hoping against my own financial interests that Obama and the Dems will succeed in improving the economy. A strong economy will cause even greater losses in my TZA, but will cause a better world for us all.

Have a wonderful New Year's Eve and a good 2012.
- jw

4:06 AM  
Blogger Charles Amico said...

Happy New Year JW. Thanks for leaving a comment. I want to help you regain some losses on TZA so let me explain how. First, you can't just hold it and expect it will go back to where you bought it as it won't. But, for example if you were to sell say 50% of you shares next time it reaches $30-40/share as it has within past few months. At the time you sell 1/2 shares, then buy TNA when it should be at $35 and then sell it when it goes to $45 or above and at the same time buy back TZA shares. This will help you rebuild your portfolio in my view. I have been doing this the past 3-6 months, using the volatility to regain some assets. Hope this helps.

Regarding BCON, I agree that the technology is very good, but they were undercapitalized and that is why they went bankrupt. Some large power company with deep pockets and a long term view might buy the company and make some good money on it eventually.

7:25 AM  
Anonymous Anonymous said...

Let us holders of TZA hope that we are not hit with another reverse split. One was bad enough. Two reverse splits and our hopes for breaking even are very likely never to happen, ever!
Every day I kick myself for making such a foolish mistake in buying TZA in the first place.

2:16 PM  

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