Before you read any further, let me be clear that this is NOT a post of my predictions for 2013! Those of you who have read me over the years know that I’m a trader, which means I operate on if/then scenarios and therefore I do not make big bets based on what I think or hope will happen in the market. This post is also not influenced by the first few days of strength we’ve seen or the so-called ‘January indicator.’
That said, I wanted to touch on something I discussed in that radio show Friday regarding the outlook for 2013. The previous guest on the show was Jeffrey Hirsch, who with his father Yale puts out the Stock Trader’s Almanac each year. That’s a great publication and a nice tool to have at your disposal. It lays out tons of seasonal data and seeks to point out similarities between current conditions and how the market has responded in the past, among other things.
Anyway, Hirsch had apparently laid out a case for a big bear market this year before I came on the show (according to the show’s host). And maybe that’s true and we get one. Maybe his data backs that up, in which case I respect him for following his process. I’ll follow mine, and you should follow yours. Maybe this year we do see a significant decline and the headlines become headwinds for the market. I’m not here to dispute that notion. The charts will tell me when it’s time to be bearish (lower highs, lower lows), and I’ll trade accordingly.
What I do want to mention though is the flip side of that coin. Isn’t it possible we see a huge year for the markets? Currently, it’s widely known that sentiment across the investor landscape is horrendous. Wall St. scandals, dark pools, HFT’s, flash crashes, government intervention, etc. have driven many retail traders and investors away from the market. They don’t feel like it’s a fair game, so why even play?
And yet, what else can draw them back into the game like some stellar market performance? People can’t resist a huge rally, and we all know there’s nowhere else to park money right now for those seeking a decent return. It’s something to think about.
Toss into the mix that virtually any exodus from bonds provides a ton of fuel to propel stocks higher, and a case could easily be made for the bulls to have their time in the sun again. With the RUT small-cap index hitting all-time highs just this week, it’s hard to argue against the growing appetite for risk.
Again, this isn’t a prediction of what I think or hope will happen. Just an exercise in looking at the flip side and being objective. It’s a good habit for every trader to be in.
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