Tuesday, November 1, 2011

S&P 500 Year End Predictions for 2011

Today marks two months until the first day of the coming year and the day following the largest percentage gain for the Standard and Poor's 500 index since 1987. Last Thursday CNBC contributors and their top cheerleader Jim Cramer, who's moods change with the tide of the daily trading direction, were touting new highs to come for the S&P 500 index this year based upon a disconnect between Europe and US fundamentals.

Throughout the day last Thursday, as the market continued to climb based upon the Greek bailout agreement, their stories and quoted analyst all pointed towards an ever climbing market that may see a little pullback before surging higher. Yet on the preceding day around 1:00pm the FastMoney Traders called a lower market going into the close. But it was only moments later that the market turned higher.

The purpose in pointing this out is to just let you know that these people are nothing but cheerleaders. If they had the legs and boobs they would be on the 50 yard line of the Superbowl instead of behind the desk. They share equal knowledge of the current market and prognostications as those on the 50 yard line.

On Thursday I also thought that the market would be going down. At that point for the account that I manage I had liquidated all the long positions, except a small position in Eastman Kodak [EK] which I had purchased at $.78 per share, and shorted the S&P 500 index. My trade was to buy SH at 12:23pm for $40.46 per share.

I have one cardinal principle which I base my trading upon; to provide support for investors by buying stock when prices decline and to give investors an opportunity to buy into the market before it surges too high by selling as prices vault ahead. My philanthropic agenda had resulted in a 12% gain for my investor for the preceding three months on the money put at risk.

Unfortunately I have too many projects going on to be able to dedicate the time necessary to monitor the markets throughout the day and make regular trades. Often times my trades are executed by limit orders or when I happen to get a chance to get online and check the market.

My trades are always based upon mood. Do I feel that the market has declined too much too quickly or the opposite without justification. Such was the case on Thursday.

In examining the third quarter GDP report and the Greek Bailout arrangement I came to the conclusion that both were false positives and that the rapid price appreciation in the market was unjustified based upon fundamentals.

The GDP report, although showing a 2.5% gain, I believe demonstrated a consumer and business appetite to spend, regardless of the future uncertainty and that it was done with borrowed money. This is a prescription for future contraction as pent up demand doesn't get released on a regular basis. I believe the next GDP report will show expansion of only about 1%.

I believe that the Greek Bailout agreement is farcical. To put it into context for you I present this analogy. You are a struggling manufacturer on the brink of bankruptcy when a distributor comes to you with a plan to bring you out of the abyss. He has 20 retail sellers as clients who he says will buy your product at a set price. Quite simply they will send money to you directly for a sum total. The details that have been left out are when payment will be made and how this big increase in demand is actually going to materialize. The traders on Thursday thought that would be good enough for you to immediately ramp up production but I didn't.

Although today appears set to be another down day with the S&P 500 futures being down as much as 26 points in the premarket [the few hours before regular trading where all trading is executed electronically through limit orders] I had already sold my short position last night at 6:05pm for $41.26 per share. A 2% gain in as many trading days was good enough for me and consistent with my day trading mindset.

So here I sit at 6:00am ready to buy back into the S&P 500 with about a 10% commitment. So, at 7:04am I executed a buy of SSO at $44.52 expecting further weakness but buying back what I sold last week at $46.00.

Although I have never bet wrong my trades have not always come as quickly as I would have liked. Although I expect more downside I can buy in now and make a profit. My target for the S&P 500 remains where it was on the first day of this year: the S&P 500 will not close out the year higher.

Here are some other predictions by Wall Street's elite analysts.

Goldman Sachs 1500
UBS 1425
David Bianco - Bank of America Merrill Lynch1400
Mary Ann Bartels - Bank of America1400
Tobias Levkovich - Citigroup 1400
Barry Knapp - Barclays Capital Management 1400
Wells Fargo 1390
BlackRock Inc. 1350

If any of these prognosticators are correct I hope that I am heavily invested in the market at the time. It will take 60 days to see.

If you need assistance with financial or life issues such as learning to control irrational behaviours and herd mentality then please visit my website and contact my scheduler to make an appointment to meet with me.

If you would like to follow my activities more closely then send a friend request to my Political FaceBook page.

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©2011 Stuart Showalter, LLC. Permission is granted to all non-commercial entities to reproduce this article in it's entirety with credit given.

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