Lately, since August'11, we all feel the increased volatility in all markets. $VIX shot up in August this year and reminded people of the horrible pricing action in 2008. Currently, there are many fundamental issues that remain unresolved - globally and locally! The tape conveniently chooses any of these events to justify the market pricing changes for any given day. However, its interesting to note the weekly $SPX chart over longer duration, say 10 years. It quickly becomes clear that the current market swings are nothing but a healthy attempt of the 50EMA (green line) to test the 150 EMA (red line). So far so good. 50EMA has not even closely approached the 150-200EMA yet. On a weekly chart, this 50EMA line doesn't cross over 150 or 200EMA often and when it does, it stays there for at least 2 years. Earlier this year in January, 50EMA has crossed over and above the 150-200 EMA. Hence, I would dare to think say that it'd stay over for another year at least. In other words, 2012 might be a positive year for all stock indexes. I cannot believe that I am writing this out (Remember, this blog was meant to be for record keeping of thoughts after fundamental and technical analysis - no emotions allowed :))
It sounds absurd as we constantly hear the tape that talks about all the issues we are facing globally. However, for reference, tape started on SubPrime issue much earlier than the actual crash in 2008. The market kept making new high on divergences in MACD, RSI and even NYHL. Similarly, the market may make new highs in 2012 on weakening fundamentals before finally crashing in 2013 onwards. Besides, 2012 is an election year. Thus, Ben and his team will do anything to ensure common man doesn't feel the economic boxing glove in his face.
No one can predict timing, but this is a general overview of how the scenario might unfold I feel. Lets watch this closely and see what happens.
Update 12/27/11 : As I looked at other weekly charts for 10 year timing, TLT looks like its ready to roll over, which is consistent with the scenario painted above. Oddly though, dollar may slow its decline and stay flat or higher with transitory wild swings either ways. Gold is a tough one to talk about - it currently looks like it wants to touch 1300s from where it broke out in Jan'11. SLV might get bid before gold will after it tests $25/Oz level in the near future (2-3 months). Crude looks like its headed higher... CVX, XOM look ready to make new highs
AMGN looks like a good buy on a pullback
Pay attention to UDR, AD ratio etc. when analyzing money flows between sectors and/or particular equity of interest for longer term investment
On rising markets - keep an eye on the following underperformers with relatively good fundamentals and/or earning estimates-
HES VLO ANR RIG PBR (energy plays on improving economy viewpoint)
SID GGB (Brazil 2016 play)
ESE(smart grid play - steady performer from earnings standpoint)
MCP REE (rare earth play in improving demand)
IPI CF (potash based on agri demand)
HSFT LFC (china plays)
GDXJ PAAS (Gold/Silver play)
STJ TEVA ILMN (Healthcare plays)
BRCM HPQ AAPL ARMH (technology plays)
CLWR RMBS ALU S (4G plays)
