By Andrew Nyquist
We laughed, we cried, we felt cocky, and ulitmately we freaked out. What a year! And all this netted out to a precisely even annual close for the S&P 500. We started the year at 1257.64 and closed at 1257.60. So, just what the heck happened in 2011? Was it a tough start and an uphill battle into the end? No. Was it a great start with a tough back half? Kind of, but not really. So what was it?
Well, in short, it was a freak show. The year started off beautifully enough with a nice move higher. And although temporarily slowed by the tragic earthquake in Japan in March, the “herd” would not be stopped. After a brief pullback, the market rocketed to 1370 in early May. And with the financial media clicking and clucking and everything feeling eerily good again, many investors had seemingly forgotten about the financial crisis and cliff dive of 2008. Furthermore, the markets were clocking in at a 100% 2-year bull market move, and as if this wasn’t enough to be cautious on, the S&P 500 had just registered a monthly TD DeMark 9 Sell set up at the end of May… the perfect concoction for things to get freaky.
The markets were soon thereafter overtaken by domestic and European debt concerns. Volatility filled the marketplace and morning gaps (usually down) became the norm. Social mood, here and abroad, continued to sour and the Occupy Wall Street movement pushed to the forefront. “Will Europe survive?” became a daily question mark and the unending uncertainty took its toll on equities and caused a spike in gold. And although the social mood toward politics and financials isn’t dying out any time soon, it did get a bit fatigued as we neared year end, allowing for a nice contrarian santa rally now and possibly into the New Year. Either way, politics aside, the mood is completely understandable, yet undeniably anti-government and anti-financial.
So what do we make of 2011 technically? Well, as Phil Pearlman of Stocktwits pointed out in his blog “Coming to Jesus,” this year’s technical candlestick took on the form of a cross, or doji. And although this formation literally signifies indecision, Pearlman writes, and I agree, that it was a “fitting metaphor for the year as sacrifice and rebirth are two critical underlying themes as we move from December into January and a new year.” Furthermore, when taken at face value, the doji is also representative of the volatility, fear, and indecision that we experienced. Yes, the year was full of fear, and a lot of it. But, maybe, just maybe, after all the fear and uncertainty of 2011, the new year will bring us the gift of reality. A rebirth of sorts, providing the ability to see clearly and envision a better future, regardless of short term market results. Maybe a little something to set the economic framework and pathway for future generations.
On the investing front, the room between the current price of the S&P 500 and its 2007 annual high is still substantial, so the market has plenty of room to rally without confirming a new bull market. Make it your goal to start each trading day of 2012 with an open mind and avoid emotional investing. Continue to look for good stocks displaying technical and relative strength. Managing risk will no doubt continue to be a major theme in 2012.
Happy New Year, and happy investing.
For more on investing in 2011 and 2012, see Joshua Schroeder’s The Year that Was and the Year to Come
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No positions in any of the securities mentioned at time of publication.
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