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How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market Review...2011 and What May Be Ahead For 2012.....

Stock-Markets / Stock Markets 2011 Jan 01, 2012 - 05:42 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis Article2011 was clearly the year of the bull.

Why, you ask?

Think about it, folks. This market was hit with a tremendous amount of bearish news from all over the world. Europe in terrible shape with many of the Eurozone countries tinkering on bankruptcy. Desperate measures are being taken to try to keep things afloat. Day after day we hear of how dire things are overseas. We know that Japan and China are struggling with their economies, and things are slowing quickly.


We then only need to look out the window to see how difficult things are in the United States. We could get the worst possible news at any moment about the banks going under, and we are facing some very difficult debt issues with a potential recession on deck. There is, basically, nowhere to hide from the bad news. No real safe haven. Through all of this we see how our markets hung in there very well. Amazingly well, to be blunt. The S&P 500 finishing flat. The Nasdaq 100 down 1%. The Dow green for the year. Hard to believe so much bad news could be upon us, and yet, our markets didn't fall. Tremendous nonsensical whipsaw to be sure, but in the end, the market held up better than any real bull could have hoped.

We can all wish things were stronger for our markets, but that, in a sense, would be living in Disneyland. How can anyone really expect our markets to have held up much better than it did. To have expected a big year for our market, with all the bad news hanging around out there, would be foolish. The real frustration is being felt by the bears. They can't believe the market isn't down double digits this year. Hard to blame them for that thinking. They have had their chances, and so have the bulls, but the bears did get a recent breakdown below key support at 1225 only to see it fail, even though they took it down to 1202. I would say the bears began to give up some in December. They prevented the bulls from breaking things out above 1267, but failed miserably to get the job done many thought was a slam dunk based on global issues.

The bulls were the winners this year, even though the market was flat.

Now, we need to try to understand what we may see in 2012. The truth is, nobody knows. Anything can come out of Europe. We can get a nice surprise, and have some form of a positive resolution overseas. Doesn't seem likely, or obvious. That's what markets love. The most unlikely outcome. The masses are usually wrong, and most folks expect the worst out of Europe, so maybe the market will get some surprising good news out of left field. I am not saying the bears will be wrong. It seems the odds are in thier favor, but you never know. And the truth is, no one really does know. The problems there aren't just going to disappear. We need real action that would have longer-term positive affects. The market is hoping that takes place, and is acting as if there is real hope.

It won't be happy if the worst actually does take place during 2012. There is a real chance the worst will occur, but you never know what can happen, so stay open and don't react ahead of time. Wait for the market to tell you when it's time to give up hope. I'll talk more about levels later on in this note. 2012 is being received with a lot doom. The ardent bears are insistent that things will go very bad. This means there's a lot of shorts in the market, and when there are a lot of shorts there is a lot of fuel for the bulls, should the right piece of news go in their favor. Just keep that in mind. In the end, nothing would surprise me. We could see Sp 800. We could see S&P 500 1500. We could see S&P 500 1267. Why worry about it! We adjust as needed from day to day. Don't think too much. That's the market kiss of death for most people. Too much emotion equals a bad outcome. Step by step and day by day as always.

To understand the way people are thinking about the market here, all you have to do is look at what is preforming well and what isn't performing so well. The more defensive end of the market is what's performing the best. Few people want anything to do with huge risk. The lower P/E, and higher dividend stocks, are where the money is running to. High P/E, high beta, and high froth stocks, are mostly in a bear market.

Amazon.com Inc. (AMZN), Wynn Resorts Ltd. (WYNN), Sina Corp. (SINA), and many more Nasdaq 100 stocks are in the toilet. In real bear markets of their own. There are more stocks in bull markets in the Dow. That's where the safety trade is for now, and may stay for quite a long time to come.

In order for us to see a real bull market, froth must lead. People must want to own froth stocks that have no right trading as high as they are. That's when you know the waters are safe. When the Nasdaq 100 world lags badly, that's when you have a red flag up that needs to be observed closely. Very few Nas stocks are performing exceedingly well. Apple Inc. (AAPL) is holding up fine as are a few others, but you have to search hard to find them. In a bull market, all of the Nasdaq 100 stocks would be rocking higher together. We're just not seing that type of action as the year winds down. There have been some good moments for these stocks this year, but overall, it hasn't been the year for tech as the Nasdaq 100 under performed the Dow by nearly 10%.

That's unusual, and very unhealthy in terms of being in a bull market. As long as the defensive game is on, look for whipsaw to continue, but be prepared for the two possibilities to strike at any moment. Either the Nasdaq 100 takes over, or we start to see money come out of the safer haven Dow stocks. Whichever one comes first, will be the next one to offer up the next directional move. It'll become clearer as it unfolds early on in 2012. For now, utilities and defensive stocks are leading. That must change if we're to see a positive 2012 for the masses.

The Nasdaq 100 needs to clear trend line resistance at 2625 for this market to really get moving with force to the up side in a more directional tone. It must defend the lower trend line at 2525 to keep the bullish hopes and dreams alive. It's best to look at the Nasdaq 100 for clues, because as I stated above, it really is all about the Nasdaq 100, and froth stocks, and whether anyone wants to take on lots of risk. Bull markets are pure risk markets. Non-reality markets, if you will. If the Nasdaq 100 would clear 2625 if the froth trade is very much alive and kicking. If it loses 2525, it tells you the bears are gaining control. A one hundred point range, or exactly four percent.

There's not a whole lot of room, and keep in mind, that these trend lines are moving inversely to each other, and thus, getting tighter all the time. The top trend line is moving lower, of course, and the lower trend is obviously moving higher, thus, the four percent spread is narrowing alomst daily, although it's a slow pinch. At some point, the market will have no choice but to make a strong directional move out of this annoying triangle. This guarantee's a very strong move at some point for this market in 2012. It won't stay this boring and obnoxious forever, folks. That I can promise you.

In the short term, if we look at the S&P 500, we can see that 1202 is the old low and the headache that is 1267 still remains as clear resistance. It would be helpful if the Sp could blow through 1265 with force. If nothing else, it would drag up the Nasdaq 100 and hopefully create the breakout for the bulls. It would be very helpful if a leading stock, such as Apple, which has massive resistance at gapo at the 410 level, would break above that number. It would help carry the Nasdaq 100 above the breakout at 2625.

It's a lot of pressure for one stock, but it is heavily weighted, and will have a lot to say about what takes place next. International Business Machines Corp. (IBM), another tech leader, although not in the Nasdaq 100, is a stock with a bit of a red flag attached to it if you're a bull. There have been some decent distributory tops, or higher volume selling off recent high readings. You're not seeing the same volume to the upside. Not necessarily the kiss of death, but something to aware of as it could mean things are worsening for the entire tech leading stock world. That would obviously be a major stock market negative.

So, here we are after a flat year in the stock market. 2525 to 2625 key for the Nasdaq 100. Short-term, S&P 500 1202 and 1267 are key. All else is noise and nothing but noise so don't be fooled by the whipsaw. Don't spend too much time listening to the overly bullish folks out there who are never bearish because they want your dollars in their stocks. Don't pay too much attention to those who tell you the world is ending this year for the stock market. Probably neither is going to be very true when all is said and done, but there are lots of potential hazards around to be sure.

The right news will hurt the bears. The wrong news will hurt the bulls. Anything is possible considering the environment we're in at this moment in time. There are too many unknowns to make a certain type of prediction as to what we'll be seeing in 2012 for this crazy stock market. Let's just take the message the market sends, and respond appropriately. Go slow and easy as always. Don't play this game from a greed perspective. It'll kill you financially if you do.
Thanks for being a part of this service. This is the toughest game around. Respect it, and it'll respect you back. Think you've got it beat, and it will beat you down. Be safe.

Happy New Year!!

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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© 2011 SwingTradeOnline.com

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.


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