The new year has started off on a positive note with the market showing nice gains so far. I expect we will see more gains as the quarter progresses. Keep in mind though that we are still in a longer term down-trend (just look at the chart on the right side).
Last year's performance (EVERYTHING was down!):
Take a look at some of the DOW stocks...
S&P 500 -38%
China -45%
Commodities -38%
Basic Materials -50%
Semiconductors -40%
Energy -45%
Health Care -23%
Next week kicks off earnings season again; also we get the monthly payroll report on Friday. I'm looking for a continuation of the short-term up-trend to continue, but as always, use good risk management on your positions and cut your losses early.
What will the markets bring this year? (see last January's blog for comparison)
Gold and Silver stocks are moving up nicely; I expect this to be an excellent year for these stocks. Gold has performed nicely every year since 2001.
I expect the overall market to rise short-term (this quarter), but beyond that, it's anyone's guess as to whether it will continue up, or turn down again. It could be another rocky year, and I expect the recession will get worse before we begin to see a turnaround.
Interest rates will start to rise eventually; hard to predict though when this will happen, as investors continue to seek the safety of bonds, driving rates down. Rising rates will be a result of falling bond prices; Bonds appear to be in somewhat of a bubble right now, yielding near zero percent (we have already started to see a pullback this week).
Financial companies (banks & brokers) could begin the long road to recovery, though we could also fall into a deeper recession.
Commodities could start to rise again if the US Dollar starts to fall.
International markets (China, Brazil, Europe, etc.) will probably follow the US market.
And finally, we will probably see the housing market hit the bottom that so many people have been predicting for so long (this is my first prediction for a bottom in the housing market). On the flip side, we could see 'commercial' real estate take some lumps this year.
The secret to success in the markets is to cut your losses early if you are wrong on any trading position, and to recognize price trends from a chart, so that you are always trading in the direction of the trend.
For 2009, take a look at using ETFs in your investment portfolio, and if the market heads down again, definitely take a look at 'inverse' ETFs to hedge or to profit from a down-trend (see my ETF page). Be VERY careful though with leveraged ETFs (2x, 3x performance) and make sure you understand how they work before trading them.
* * * To everyone, best of luck in your trading for the new year! * * *
Some quotes from my January 2008 blog:.......................................................
"What are some of the 'experts' predicting for 2008? More interest rate cuts (which would imply a lower US Dollar), a possible recession, a weak stock market, and higher energy and commodity prices." -we certainly got all of these, with the exception of the US Dollar, which rose in spite of lower interest rates and uncontrolled government spending for bailouts.
"Also don't try to pick up some of these battered Bank and Financial stocks yet -you have to wait until the 'down trendline' is clearly broken and the stock is showing signs of strength to the 'upside' (see example)." -well the bank stocks fell even further, by more than 50% so this was good advice!
"Lastly, if you still believe in buy and hold, ...stop 'holding' and get out of what's not working and get into something that is working." -if you followed this advice, you avoided major losses last year.
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News stories for this past week:
S&P 500 Never Turned Positive During 2008’s Rout
Bonds in 2009: Waiting by the exits
2008 Job Losses Probably Worst Since 1945: U.S. Economy Preview
Thousands of stores to disappear in '09
Home prices off record 18% in past year, Case-Shiller says
Manufacturing falls to 28-year low
Buffett Has ‘Nowhere to Hide’ Amid Berkshire’s Plunge
U.S. recovery seen unlikely for 2009
2009: Nowhere to go but up
Japan stocks rise as Nikkei ends worst year ever
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