US Stock Market Forecast 2012 Bullish Bearish and Neutral Projections

What is your take on US stocks for 2012 and few years beyond? Are you bullish? Well, you should not be that foolish amid so much uncertainty globally. Maybe, you might feel more secure with a bearish strategy. But, don’t you think we have already had enough of pessimism in the past years? So now you must be thinking that the market will remain range-bound, no wonder the past 10 years are seen as the Lost Decade for investors. Do you really think it is possible to predict the next big trend? Well, I would call it a foolish thing to do, but we impatient investors need levels, don’t we? In this post, I will make projections for all kind of investors and try to lay down a suitable strategy as according to the investment psyche.

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When it comes to price levels, we will make forecasts for the Dow Jones Industrial Average assuming that the other major indices will move in tandem with the Dogs of the DOW.

Before we proceed with any of forecasts, projections and investment strategies do take a close look at this maximum timeframe chart of the DOW.

The Bloody Bear: Forecast and Strategy

The world will come to an end. Global economic growth will turn negative. There will be a series of downgrades and defaults in US and across Europe. Inflation will curb emerging market growth. Economic warfare will intensify and currencies will collapse. There will be a worldwide food crisis. Affected masses will pull down governments and a political crisis will shape up. I know all you “Bears” can think of many more reasons to believe that the next big trend will be a blood bath for stocks.

Well, I can give you one reason to believe that the DOW is heading to 5000 levels soon. Don’t hear much of this stuff?

As you can see in the chart above, since the year 2000 the Dow has entered a sideways channel after witnessing a 20 year long bull rally. Now, from a bearish standpoint we can compare this sideways movement to a similar trend that emerged in 1965 after seeing a bullish phase of almost 20 years. On the charts, the decade 1965-1975 was similar to what we saw since the year 2000, so based on that if we see how bad it can get when we finally witness a double-dip recession. After studying and comparing these two decades carefully, I was convinced that the Dow can make a new low, and this time it could head straight for 5000-6000 levels. This might sound like crap to a bullish trader, but then DOW heading to 20,000 doesn’t convince someone who is bearish. Anyhow, these are the extremes a market can go to at any point in time and history has a proof of it. So, no denying what the market can do, you should be prepared nevertheless to protect your money and investments.

Long Term Strategy for Bearish Investors

Being a part of the bear club is not easy, but when the wait is over and the tide turns in your favor, minting money becomes the flavor.

If you buy the point I made about history repeating and the Dow Jones making a new low after the 2008 crash then investing in stocks is the last thing you should do. You should only look at precious commodities and build long positions on every reasonable dip. This should be a marginal exposure and the rest of the money should be in cash. Next, you will need to increase your cash position, as this is the money you might need in next 2-5 years. Interest rates on cash deposits are near zero but now your objective is to protect money. Those with a much higher risk bearing capacity might build short positions whenever the Dow enters overbought regions.

What you should keep telling yourself

The next big trend is down but that does not mean that the market cannot climb higher, it can still make a new high, but that won’t sustain. The Federal Reserve is out of bullets and any more monetary pumping will make the situation even worse. The Real Estate market will continue to sink as prolonged unemployment pressurizes consumer affordability. With consumer confidence battered down, spending will dramatically fall and a deflationary situation will emerge, and prices will soon follow suit. This will deplete any profit margins that companies are left with and thus trigger a new wave of downsizing. This economy can only heal itself and any external help will only prolong the economic mess. I can go on creating an imaginary situation that bears would fall in love with, but I guess this much is sufficient to warn investors about what all stock market downtrends can do. If you think that the 2008 crash was the worst then I must tell you that it was more like a warning sign, an economic depression could make all your nightmares come true. Let’s leave it here for the bears to cheer, when I come back and make the next post things will get rosier for Bulls as we will be discussing the bullish forecasts for 2012 and years beyond.

Till then make use of the comments section and share your say on the topic.  Also Read:-

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