The Calm Before the Storm?

I've learned from years of trading and investing that sometimes the most volatile trading conditions occur when it's the most calm, and you least expect it. This week appears to be one of those times. A number of market-changing events are in the background, waiting to become headline news. All traders can do is wait and watch until the market shows its true hand.

I also can't help but notice that many people believe this is going to be a rough year. It would be quite amusing if the market fooled everyone once again and rallied. My opinion: there will be some big bumps along the way, but the market will be resilient in the end.

Fish or Cut Bait

Update January 10: So far, so good for the market, as it remains above its 200-day moving average. We'll see if the rally continues.

It was impressive how the markets fought its way above its moving averages and made some gains. Now it’s time for the market to show its true colors, and it may not be pretty. I think we’ve seen this scene before. Just as we think we’re going higher, the markets fall back. The culprit this week could be the news: Europe for sure, perhaps Iran, and earnings. The odds favor a pullback, but as you see on the chart below, the S&P is trending higher. We’ll see if the market is all hat and no cattle. It will be a good sign if it can remain above its 200-day moving average. Looking at the chart below, MACD has crossed over the 0 line. Technicals: Positive signals.   Fundamentals: Questionable if the rally will continue

Keep Your Eye on the Strait of Hormuz

One year ago, I wrote an article about what the experts were predicting for 2011. This is what I wrote at that time:

Even with the most optimistic forecast, reality often gets in the way, and sometimes when it’s least expected. “I can draw a scenario where we have a crash,” Baumohl says. “For example, let’s say a major war breaks out with Iran and they block the Strait of Hormuz, and oil shoots to $150 a gallon. What do you think will happen to the stock market?”

The above comment was made by Bernard Baumohl, chief global economist at The Economic Outlook Group and author of The Secrets of Economic Indicators.

And now, one year later, Baumohl's worst-case scenario could come true. In addition, watch Europe and see whether the debts can be paid. We should know by April.

Most important, the threat that the Strait of Hormuz might close will create havoc with the stock market. If you thought 2011 was volatile, compared to what could happen, 2011 will be like a walk in the park. 

9 Strategies if the Worst-Case Scenarios Come True

In my latest Marketwatch article, I went a little outside my usual subject area to address the 2012 doom-and-gloom predictions. These type of articles always create controversy, but they also help people to think, which is my goal. I hope everyone had a great holiday and a happy new year :)

Here is a link to my article: http://bit.ly/v9urLr

Will There Be a Christmas Rally?

The answer to that question will probably come from Europe, which is influencing the direction of the U.S. stock market. Right now, Europeans are struggling to contain their debt crisis, among other problems. Back in the U.S., the housing market is unlikely to recover anytime soon, but that won’t stop most people from shopping, which could give us a good old-fashioned Christmas rally. The excitement of the holiday could encourage investors to go on a buying spree.

On the other hand, if you look at the charts (below), there is major resistance at the 50-day and 200-day moving averages. The S&P tried to break through its 200-day moving average last week, but didn’t succeed. If I were placing odds, I’d go with the moving averages. It should be another volatile week.

I’m writing several articles on 2012, and many people are predicting a very bad year. It makes me wonder if the U.S. market will surprise everyone and rally. After all, although things are rough here, they’re even worse in Europe. It’s possible that investors are going to look around and discover that the U.S. is the safest place to park their money.

The wild card is China, and whether they will continue growing. Some analysts predict that China is full of future investment opportunities, while others claim their market is due for a nasty fall. 

So will there be a Christmas rally? At the moment, it’s too early to predict what will happen. I can promise this: it won’t be boring.

Source: Stockcharts.com