Saturday, January 2, 2010

Stock Market Outlook 2010 (Part 2)

Extracts from an article posted by a US Market Timing Expert on Dec 31, 2009:

2009 was one of the rare years when seasonal patterns did not appear. Investors may be surprised how aggressively the seasonal pattern bounces back in 2010.

Remember the Four-Year Presidential Cycle?

The history of the Presidential Cycle: the economy and stock market tend to have problems in the first 2 years of each new president’s term, and then recover and be robust over the last 2 years of the term. The Cycle has a very consistent pattern in the President's first term. For instance, almost all bear markets have taken place in the first 2 years of the Presidential Cycle, and almost all recoveries have been underway in the last 2 years of the Cycle.

So what does that mean for 2010, when we have a President in his first term and 2010 will be the second year in this Presidential Cycle?

There will still be economic problems, in the real estate sector when the program of big tax rebates to home buyers expires in the spring, in the financial sector as commercial loan defaults continue to spike, in consumer spending (75% of the economy) as consumers remain hunkered down under high debt levels and high unemployment. No one expects any more than tepid economic growth next year. There may even be a dip back into recession for a quarter or two. Of the 7 recessions since 1957, 5 had W bottoms rather than V bottoms, ie, they experienced one or two positive quarters and then dropped back into recession for one or two quarters. So we can expect problems sometime during the year for the stock market.

Since 1918, there has been a huge rally from the low in the second year of every Presidential term to the high the following year. Even the conservative Dow gained an average of 50% in those rallies. It has taken place no matter which political party was in office, in periods of war or peace, high or low interest rates, high or low inflation, high or low budget deficits, or whatever. It’s a period when you would not want to be out of the market, a period when even buy and hold investing is at its best.

The problem – identifying when that LOW is in place. Historically, it has more often taken place in the fall, but over the years every month has had a turn or two in producing the low, even January.

So, it is highly likely there will be an important time next year to take profits and stand aside, to avoid the large losses that have taken place within each year recently. The problem is not made easier by the fact that each of the last two years experienced serious downturns right out of the gate, beginning just a few days into January.

Have you read "US Stock Market Outlook 2010"?

Hmm... when will that LOW be? Ask my Stock Market Time Clocks lor!

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