It’s the age old question, and if your stock market predictions are right 11 out of 20 times, you’re probably a millionaire. Now, everyone has their opinions and everything I state below is my opinion. So what are my predictions and how do I have my portfolio positioned to capitalize on my views?
To get right to the point, the S&P 500 I believe will be 1,700 by the end of 2013, and 2,000 by the end of 2014. As I write this, that translates to a 3.5% gain over the next 6 months, and a 21.8% gain over the next 18 months. The numbers themselves tell one thing, LOTS of volatility over the next 6 months, followed by renewed conviction over the following 12 months (aka lower volatility). Now would be a great time to trade options, if you can do that kind of thing.
Why do I believe in those price targets? Well for one, I’d be lying if I said I constructed them completely on my own. But with proper research on my side, I like these levels for a few reasons:
– The S&P 500 has been up 11 out of the last 12 months. A very powerful trend (in an already strong secular bull) that will take much more to break than bulls in the past. And with that point, this chart hasn’t failed for some time.
– Even the much talked about Hindenberg Omen indicator may not be able to fault this bull market. It hasn’t yet, even though people have said it would with the debt ceiling, sequester, or Fed tapering talks. For the record, I’m no a fan of this indicator as its rules seem to differ and you can “make it work” for lots of scenarios. People mention its accuracy, but they fail to include the countless times it missed when it probably should have worked.
– The number of shares available on the stock exchanges are relatively low still. This is due to share buybacks, M&A activity, coupled with a less than stellar IPO market. As we all learned in Economics class, when demand outpaces supply, prices go up. Figure 5 in this article .
– As a side point, IPO’s are losing their luster in Silicon Valley, as well as other sectors. Marc Andreessen (aka The Man) explains.
– So I like the technicals of this market, the fundamentals are my only reservation and need to be monitored. But, as this secular bull has shown us, most trading strategies or stock patterns that have worked before, have been thrown out the window. (Also, where else are you going to invest, or better yet, whose central bank do you trust the most?)
So how am I capitalizing on my view above? As I write this, my portfolio is positioned heavily towards tech. Why? It’s a risky contrarian trade that has treated me well so far and I think will continue to do so. The reason it’s contrarian is because most funds have been underweight tech for a few quarters now, and tech stocks got beat up pretty good. Much like a swinging pendulum, these stocks will be bought again. So I’m making sure I’m on the train before it leaves the station.
It’s almost a reverse sector rotation strategy. Saving you from more boring technicalities, which tech companies am I positioned in?
– YHOO (@18.94/share on 11/28/2012) – Jumped on the Marissa Meyer bandwagon early
– HTGC (@10.58/share on 11/28/2012) – which has an +8% dividend yield
– TCPC (@14.95/share on 11/28/2012) – which has an +8% dividend yield
– AAPL (@398.91/shares on 4/22/2012) – By the way, it looks like it is finishing off an inverted head and shoulders pattern. What does that mean? Probabilities say it’s a really good time to buy if you’ve been waiting to get in. Read the link for more context than I care to bore you with here.
– FB (@38/shares on IPO) – Yeah, holding onto this one for some time I think. Stop laughing.
So if you’re looking to play around with some money (not your retirement money ya dummy!), beware that you’ll see some wild swings over the next few months. But the calendar year of 2014 could be smooth sailing.
Next post I’ll dig into the ETF/MF’s and your retirement.