At my age I shouldn't be wishing time away, but I'm tired of the last 19 months, so I'm looking forward to 2013 - a year when I expect this 12-year volatility to settle down and some good solid long-term trends to fire back up. The stock market has been a big hassle since May 2011, and conditions in virtually every country have been wildly up and down. I think the last 19 months have done more to turn the public stock investor off than anything. The chart below is an example of some of the volatility and dysfunction that we've witnessed since May of last year here in the US.
In the chart above, you find the percent of stocks trading above their 50- and 200-day moving averages (DMA). You can see the 200-DMA line (blue line) peaked around last May, and when I look at this measure on a sector-by-sector basis, I find the same to be true for almost all of the sectors - a sign of growing dysfunction. The sectors with the most stocks trading above their 200-day moving average today are Industrials, Consumer Staples, Basic Materials and Healthcare. It's exciting to see the recent action of the very beat-up Industrial stocks. Then we've got Healthcare, which has probably been the best sector in all periods. Financials, however, had been doing much better, but they've shown some resistance more recently. And of course, Technology continues to be a poor performer.
But of course, we now have the media that's so focused on the "Fiscal Cliff" that the picture continues to haunt investors' perception of the year ahead, and indeed, the Consumer Discretion sector that has led the markets since 2009's low is taking a sabbatical. But if you take your hypnotic trance off the factor, just take a look at housing, small business loans, and the ability of companies to continue to improve balance sheets and increase earnings. So, despite the less than thrilling odds for the next few months, our Asset Allocation Model continues to suggest, that if history is any good as a guide, our long-term prospects are still very bright.
All in all, I'm suggesting that you have an excellent chance of catching that BIG FISH if you keep fishing. But there are a few rain showers lurking around, and even though it will not be a big storm, do you want to risk missing the BIG FISH for fear of getting a little wet from the rain in the meantime?
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