Will 2012 Trade Like 1995?

The S&P left 2011 where it started and I view this as a very positive event. The negative news in the last six months, ranging from S&P’s downgrade of the US credit rating to the near demise the European economic system, should have taken prices 20-40% lower. Yet the market shrugged off the news and held strong.

Most trading styles didn’t fare as well in 2011 and the preliminary results from the hedge funds are showing most styles of trading/investing lost money last year (today’s WSJ story on this – Why Hedge Funds Tripped in a Volatile Year). Putting it all together, it was a year that few made money. But the many long-only funds should have (but didn’t) lose a lot.

I’ve said this a few times, 2011 looked a lot like 1994: a rangebound market where no matter what the style of trading, the outsized gains were not there. Ultimately though, this led to a major breakout to the upside beginning in 1995 and I expect we are going to see the same thing in 2012. When so many “professionals” are so bearish (and frustrated) as they are now, the market does its best to confound the majority. And that means higher prices. Add the Fed pumping money into the economy at record rates and it leads to the potential for an upside runaway move in the US indices.

The above is from the Daily Battle Plan with Larry Connors.  To learn more about Larry Connors and the Daily Battle Plan, click here.