In an uncharacteristically strong October for stocks, the NASDAQ and the S&P hit a "Golden Cross" last week, where the indexes' 50-day moving averages surpassed their 200-day moving averages - a very bullish signal. The Dow achieved its own Golden Cross on October 1.
Before you rush out and buy a bunch of stock, however, be aware that the signals aren't always right. Back in July we saw the dreaded "Death Cross" (the opposite of a Golden Cross), and the markets have risen 15% since then. That said, I think the coming Fed action is going to drive stocks higher, as long as it doesn't precipitate the violent civil war that some are predicting.
"Historically, the market has performed better following these patterns than if you were look at any random one, three or six-month period," said Paul Hickey, co-founder of Bespoke Investment Group.Specifically, the average six-month return of the S&P 500 Index following a golden cross was 3.9 percent from 1929 through 2010, while the S&P 500's average six-month return any other time was 3.1 percent, according to Bespoke's research. The research also shows the six-month average return following the golden cross is positive 63 percent of the time.
Last year around this time, Bondarb had a post calling for year-end predictions. Might be time to ramp that up again. So let's have it. Same format. Let's hear your predictions for the closing prices on 12/31/2010 for the following:
- S&P 500
- 10-year Yield
- Crude Oil
- Random Thought/Prediction
Closest to the pin gets 5 Silver Bananas and the undying admiration of your peers. I'm especially interested in the outlier predictions.
I agree with Eddie on this to some extent. The US market has rallied a little too hard- it's time for a modest pullback. Globally, I'm expecting oil demand to go back to testing our production capacity as the BRICs continue to develop at a breakneck pace.
Still think equities- particularly hard assets- are a fairly good long-term investment, though.
I generally agree with these predictions. My comment was going to be the "sell the news". I think the market has rallied ahead of the November elections. Don't expect too much action, there could be a sell-off after the election. Politicians are politicians.
S&P: 1100 10 Year: 2.2% Oil: $75 Prediction: These mortgage putbacks are going to be a major pain in the ass for the mega asset managers and the commercial banks. I think it will exceed the worst case scenario by JPM where putback losses are estimated at $120 billion. Having the NY Fed involved only makes the situation stickier. The mortgage market will be very interesting next year. Also, I feel as if a Republican takeover in the house is not priced in yet, and the market will sell off on this based on expectations that the stimulus spigot would be turned off.
1.) 1350 2.) 2.50 3.) $90 4.) Overwhelmingly positive Q3 earnings and a larger than expected package by the fed take us through the elections, the largest Republican sweep in memory drives market euphoria through December. Economic sentiment increases due to inflated asset prices, corporates continue heavy CapEx spending, and setting the stage for a steady down-ticking of the unemployment rate through 2011 as corporates begin investing in human capital. Re-entry of the retail investor into the equity markets begins 2q-3q 2011.
S&P: 990-1,015 - Despite my better judgement to expect the markets to finally tank, I see the market dropping about 200 points before year end to account for the impending QE2, further flow of funds out of the US Equity Markets and the general shift away from the US markets as an indicator of anything. 10 Year: 2.1% - 2.2% - There will be an increased correlation between the S&P and Oil: $110-$115
Predictions: Not alot of good will come by the end of the year. I expect there to be a whole lot of anger directed at the US, pariticularly in terms of currencies. I expect the Fed to further devalue the US Dollar and artificially prop it up, furthering the disconnect between fantasy and reality. The putback issue will create some interesting problems for BofA, like FXTrading said, but I don't think the bailout spigot will be shut down. If the putbacks really do reach $120 Billion, I don't believe that the GOP will turn away from another round of bailouts if necessary. I do think that the markets have any clue as to who will win, and that will start to be priced in this week as some of the more interesting challenges take center stage (I'm closely following the Rush Holt/Scott Siprelle battle for NJ's 12th Congressional District and John Adler/John Runyon [Yes, Former Philadelphia Eagle John Runyon] battle for both NJ's 3rd Congressional District and a chance at starting the breakup of the George Norcross Machine in South Jersey) and the picture becomes alot clearer. I also don't think that the markets have fully priced in a major increase in commodities, led by both a demand for physical gold and an increased demand for metals used in electronic components, which will cause the market to drop as well.
I follow NJ's 12th district as well, but I wouldn't say that this election is worth watching (You must be from this district). I like Siprelle (he is a former banker) but I don't think he has any shot of winning.
I could see an alternate scenario, however, were attention is brought to commodity prices and QE2 starts getting a really bad rap. Bernanke decides to scale it back, equities freak out and pullback somewhat, while commodities get crushed. I doubt this is likely, but some version of this could play out early next year (say when NFP and GDP numbers show QE2 is shooting blanks).
The midterm election's results don't leave much doubt in my mind. Problem is it won't change anything from a policy standpoint and any impact on the equity market will be as psychological as having an NFC team win.
S&P: 1275 - I'm a bear long term (next 2-5 years, after that I am long term bullish) but I think we will see a post-election rally that will last into 4th quarter earnings season in early January
10 Year - 2.2%
Oil: 85$
Predictions: Nothing really crazy going on here. We will continue to see irrationality in the equity markets as everyone keeps drinking the kool-aid. On the fixed income side, traders I know tell me the first rule of trading govies is don't fight the fed. Following this logic, we should continue to see treasuries rally on into the next few years. Oil prices haven't really change too much since they've settled in this 70-80$ range, with occasional weeks where prices fall outside this range. I'd say QE2 might put a bid into oil raising it slightly beyond the upper end to about 85$ barrel.
2011 will be a year of death (QE2 not achieving its objectives, gridlock in implementing financial policy, the chart of death: http://www.calculatedriskblog.com/2007/10/imf-mortgage-reset-chart.html, the climategate scandal, the continued devaluation of all major currencies "the war").
Libor,
I know this is off topic from what Eddie was intending, but to answer your question, I'm not from the 12th District, but I'm pretty certain I've made it clear that I am a Jersey Guy with an interest in state politics. I currently live in the 13th District and am casting my vote for Dwyer unless I can find something on Nacer or Zanowic. I grew up in the 11th District and have always taken an interest in state politics. I like Siprelle too, and I think there is enough pull in the 12th that he can be elected, but I don't think he will be elected. It will be close though. I only mentioned those two as races that I am following as an indicator that people are paying attention to the impending shfit in congressional seets. As an aside, there are only two, maybe three races worthy of watching in NJ. NJ-12, NJ-6 and NJ-3 are all notable, particularly NJ-3 with Adler's camp having placed and supported a tea party plant (Peter DeStefano) on the ballot and unofficially acknolwedging he is a plant. I only brought the races up as the market has not fully priced in elections, and for the Republicans to possibly gain 2 seats (Adler's and Holt's) would shift market sentiment a bit.
Interesting point. I guess if Holt loses it really would show a significant move to the right (I think he has held the seat since 98).
I guess you are a North Jersey guy having grown up in 4th congressional.
Libor,
'99 is when Holt took office, and yeah, I have to agree. I think if more races tend to go that way, the market will price in a lesser shock factor than if the Dems win, but more to the point, it will be a shift in heavy handed democratic strongholds like New Jersey, California and New York to the right as a response to our current predicament.
If I read that right, it sounds like your from the NJ-4 area, some town in a part of Monmouth, Mercer, Burlington or Ocean counties. I grew up in NJ-11, which is Essex. I'm still waiting for Senator Menendez (Former HudCo party boss if I ever saw one even half the man as George Norcross was) and Frank Lautenberg to both get the boot, particularly the old, and completely out of touch Lautenberg.
Oh, and Eddie, my appoligies for the Hijack.
Close enough, I'm from Middlesex (I'm actually 12th district lol). My bad on Holt, I guess I should have said elected in '98
Alright fellas...i've got some fairly out of consensous calls for Q4...
1) S&P 1185...basically unch. I think rising rates and a strengthening economy will exert opposing forces on spoos and we will see a choppy Q4. 2) 10 Yr Yield: 3.65% I think the lows in bond yields for this cycle happened in early October and the market is way offsides and complacently long. I think we might see a pretty quick 100bp backup. 3) Crude Oil: $75 ...hard for me to think oil is going to rocket higher given my view on rates. 4) The economy will improve much faster then the market expects and by December we will be printing +200k/month on payrolls.
....i reserve the right to change my mind rapidly and without notice and as always I stand prepared for the market to make me look foolish...
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