December 2011 In Review, January 2012 Preview

HAPPY NEW YEAR 2012!!

It’s a brand new year with brand new things to look out for but with the same old pain in the market and an on-going debt crisis in Europe …. wow, that joy was short lived!

So before we get hit with another year of market madness, let’s quickly revisit and recap December 2011 and the year that just went by. Then we’re going to check out what’s in store for January 2012 and possibly what the year holds for us before we all die on 21 December 2012!!! … okay, bad Mayan joke but at least it put a smile on your face for the New Year, didn’t it?

U.S. MARKET RECAP – Tuesday 26 December, 2011 to Friday 30 December, 2011 AMC

Originally Posted by Conrad on Tuesday 26 November, 2011

So close to the end and its getting really exciting. With all the talk of recessions next year and slow downs and hard landings, this is really an exciting end to an absolutely roller-coaster, gut wrenching, super volatile and nerve wrecking year. What makes it special for me is that this is what I said would happen right at the start of the new year.

In fact, I said it all the way back in August and October of 2007 and again in January of 2008. I also mentioned that this weakness was expected to last until the period between end 2011 and mid 2012 …. that’s right, I am expecting ti to get worse before it gets better.

So belt up, tighten up all the loose ends and brace yourselves – 2012 is going to get bumpier and rockier and it starts after this holiday season!

Well, the market finished quite the way we expected – unchanged with a tinge of bearishness. No surprise given the state of the global economy. What is surprising is that we didn’t crash! But more about that later.

___________________________________________

TECHNICAL UPDATE – Friday 30 December, 2011 – AMC

What an anti-climatic end to an otherwise flat but extremely volatile year. Really, this was the flattest year since 2005 but the ranges were amazing! We even had the most bullish October in 72 years when everyone was expecting a tanker – 1,200 points in five sessions … unbelievable. I think we also had the most 200 point sessions on the DOW in the past decade. At the end of it all, the DOW closed up, the S&P closed very flat and the NASDAQ was down. Talk about divergence.

And the clincher is that it is not over just because the year ended. I reckon we’re in for more in 2012.

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
12,217.56 -69.48 (-0.57%)
Volume: 96,673,612
Range: 12,213.78 – 12,290.06

The DOW close to the upside by +640.13 (+5.53%) points and stayed well above all its major moving averages. On Friday, DOW closed to the downside creating the possibility of another DFDM (although the market opens on Tuesday). That will make it two DFDMs in three weeks.

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,605.15 -8.59 (-0.33%)
Volume: 290,898,718
Range: 2,604.60 – 2,616.46

The NASDAQ was pathetic. It started the year out with a bang and led everyone on to believe that strength in 2011 would be in tech. By mid year, it was evident that this was not going to be the case. By the last quarter, tech was a major drag on the market. NASDAQ closed out the year with a loss of -71.50 points (-2.67%) for the year. On yearly candles, NASDAQ is wearing a Spinning Top Doji just under the 5-year old 2,700 resistance. Like SPX, this suggests that 2012 could reverse to the downside or consolidate violently. NASDAQ is still below its 50 and 200 DSMAs.

S&P 500 INDEX (SPX: CBOE)
1,257.60 -5.42 (-0.43%)
Volume: 422,083
Range: 1,257.46 – 1,264.12

The S&P also closed to the downside but barely though. At 1,257.60 -0.02% (-0.0016%), it closed above all its major moving averages and barely maintained some headroom above its critical 200DSMA. On yearly candles, SPX is wearing a perfect Doji which suggests that 2012 could either reverse or consolidate in volatile fashion.

Although 2011 was a flat year on the indices, less than 50% of the approximately 8,000 stocks actually registered gains for the year.

But all things considered, with the triple catastrophe in Japan, Europe’s on-going saga with debt and Pan-Asia’s two-year decline, I am actually surprised we haven’t crashed! Resilience or delaying the inevitable?

___________________________________________

PREVIEW FOR JANUARY, 2012

2012 is an election year which typically ends well. According to the Stock Trader’s Almanac, since 1952, the first four months suffered losses eight out of the fifteen of these election years. To make matter more bearish, of the seven bullish years, four of them were followed by bearish years in 1956, 1968, 1973 and 1976.

January’s first five days are also a very good indicator of the market’s direction for the whole year. In the last 38 up First Five Days, 33 of those years finished with full year gains.

The January Barometer is another indicator to watch for. As the saying goes, “As January goes, so goes the year.” This means that if January is bullish, so will be the year. Since 1950, the January Barometer has had major failures only seven times. In the last 20 years, it failed only three major times and two minor times. Each failure was a result of central bank intervention. In 2003 and 2009, stimulus rallied the market into a bullish close against a bearish January and in 2010, QE2 gave the year a bullish reprieve after spending more than nine months in the red.

Another interesting statistic to note; 11 of the last 15 presidential election years followed January’s direction.

January 2012 has a total of 20 trading days and two trading holidays. It starts out poorly but ends very well. January is also the last month of the best three consecutive months in the trading year.

JANUARY TRIVIA

• Monday 2 January 2012 is a trading holiday
• The first week of January is weak
• The first trading session of the year is typically bearish
• The second trading day of the year is very bullish with the DOW up 13 of the last 18
• 4th January marks the end of the Santa Claus Rally
• The second week of January is typically bullish
• Expiration week is horribly bearish with the DOW down 9 of the last 13
• Monday 16 January is Martin Luther King Day – Markets are closed
• First trading day of expiration week, DOW up 14 of the last 19
• Expiration Friday of January is bearish with the DOW down 10 of the last 13 with big losses
• The last Monday of the (economic) month is typically bearish ahead of the FOMC meeting
• FOMC minutes due at 14:15 EST on Wednesday 25 January
• January ends well with the last three session often rallying into the close of the month

For traders in SIngapore and Malaysia, Monday 23 and Tuesday 24 January is Chinese New Year – SG and MY markets are closed.

___________________________________________

PREVIEW FOR THE WEEK – TUESDAY 03 JANUARY, 2012 TO FRIDAY 06 JANUARY, 2012

Markets will be closed on Monday in observance of New Year’s.

Tuesday’s data includes the ISM Index and construction spending (10), as well as the FOMC Minutes (14).

Wednesday will see the release of the weekly MBA Mortgage Index (7), factory orders (10), and auto/truck sales (14).

Data picks up on Thursday with Challenger Job Cuts (7:30), ADP Employment Change (8:15), initial and continuing claims (8:30), and ISM Services (10).

Friday’s data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, and the average workweek (8:30) are all released.

Earnings Highlights
Tuesday: LNDC, PRGS and TISI.
Wednesday: UNF, MOS, RECN, SONC and TXI.
Thursday: STZ, HELE, MON, MSM, RPM, WOR, SHLM, ANGO, APOL, FDO, GPN, RT, SABA and XRTX.
Friday: AZZ, CMC, GBX, IHS and RBN.

Economic Events
Tuesday:
10:00 am ISM Index
10:00 am Construction Spending
14:00 pm FOMC Minutes
Wednesday:
07:00 am MBA Mortgage Index
10:00 am Factory Orders
14:00 pm Auto Sales
14:00 pm Truck Sales
Thursday:
07:30 am Challenger Job Cuts
08:15 am ADP Employment Change
08:30 am Initial Claims
08:30 am Continuing Claims
10:00 am ISM Services
10:30 am Crude Inventories
10:30 am Natural Gas Inventories
Friday:
08:30 am Nonfarm Payrolls
08:30 am Nonfarm Private Payrolls
08:30 am Unemployment Rate
08:30 am Hourly Earnings
08:30 am Average Workweek

Conferences and Shareholder/Analyst Meetings of Interest
Tuesday:
- Nothing of Interest
Wednesday:
- Pritchard Capital Partners Energize 2012 Conference
- Citi 22nd Annual Global Entertainment, Media and Telecommunications Conference
- TTI Guidance Update
Thursday:
- Raymond James Financial Inc Government Services and Technology Summit
- Goldman Sachs Healthcare CEOs Unscripted Conference
- BoE Rate Decision at 7:00
Friday
- Par Pharmaceutical (PRX) Analyst Day
- Fed’s Rosengren to speak at 10:20
- Fed’s Duke to speak at 12:40

Summary of Major Market Closings for the New Year
United States
- US Equity and Bond Markets will be closed Monday in observance of New Years Day
Europe
- The FTSE 100 (Britan) will be closed Monday.
- The CAC 40 (France) and Dax (Germany) will trade on Monday.
Asia
- The Japan Stock Exchange (Nikkei 225) will be closed on Monday
- The Hang Sang Index (Hong Kong) will be closed Monday
- The Shanghai Stock Exchange (China) will be closed Monday
Australia
- The Australian Stock Exchange (Sydney) will be closed on Monday
Other Market Closings on Monday
- Russia
- South Africa

___________________________________________

SUMMARY

For me, 2011 will always be the year I came of age as an oil trader. It also represented my fifth year as a teacher and the year I took on two surgeries in two months. I have a lot to be thankful for this year more than any other year.

But most of all, 2011 was the year I was vindicated and recognized as a serious analyst and economist. Everything came full circle with almost all of my major forecasts over the last 4 years coming to fruition.

Originally Posted by Conrad on Monday 21 January, 2008

(In late 2006 and early 2007) I mentioned that the end of 2007 was going to be soft and this softness would carry into the middle of 2008. The longer term future, if you think all this is bad news, is that we are going to be soft for the long term … how long? I suspect till 2010. Any sort of recovery will probably be around mid to late 2011 to mid 2012.

Given the state of the global economy, I am going to hold firm to that four-year old analysis. I am expecting the first half of 2012 to be really rough and we should be revisiting some scary depths in the market till mid 2012. Its happened in each of the past two times that the market was in a decade long consolidation …

After the 10-year low (red area) of 1914, DOW lost 40% between the high of Nov ’16 and the low of Dec ’17 (blue area).

After rallying from the decade long 1974 low, DOW lost 28% between the high of Sep ’76 and the low of Feb ’78.

Now that DOW seems to have found its 10 year low in March 2009, the pattern looks set to repeat itself yet again after attaining 12,537 in May 2011. A 28% drop as a repeat of the ’70s will see the DOW get down to 9,026 while a 1917 style 40% drop will get it down to 7,522.

What is scary is the duration of the drops. It took 13 months to drop 40% between Nov ’16 and Dec ’17. It took 18 months to lose 28% from Sep ’76 to Feb ’78. If the current drop started in May 2011, then this drop would be 7 months old with anything between 6 to 11 months left to go.

But why should that worry me? In fact, I have been looking forward to it not just because of an opportunity to short the market but because every time the market bottomed on a year ending with “2”, it was followed by a four year rally!

• From the bottom of 1932 to the top of 1937, DOW made a 350% profit …
• From the bottom of 1942 to 1946, DOW gained more than 250% …
• From the bottom of 1962 to 1966, it fell just shy of making 100% …
• From the bottom of 1982 to 1987, there was more than 160% to be made …
• From the bottom of 2002 to 2007, DOW managed to eke out 88%.

So if history were to repeat itself, it may not be such a bad thing after all! And with that silver lining to look forward to, I bid “Adieu” to 2011 and thanks for the memories, the new friends and thanks for a profitable year.

Hello 2012 … I’ve been waiting for this for a long time so bring it on!!

For the lengthy and complete report, WAT Graduates and Members can click here.