2010 outlook for stock markets

Today we start giving our outlook for the new year,  and first we will take a look at the general picture for stock markets.

In last month’s analysis for Nasdaq we mentioned a possible jump to the 2300 level, and that’s where we are there right now. So, what next?

Here is our FPF prediction chart for Nasdaq in 2010:

(prediction chart made with Four Pillars Finance software)

As you can see the chart is mostly red, so we can expect to get renewed downside action this year. January is still slightly positive, but next February we will enter the year of Yang Metal Tiger.

Tiger is considered Wood, so the main elements this year will be Metal and Wood. This is very much a mixed bag, as Metal is usually negative for stocks while Wood has a positive influence. Metal controls and wounds Wood, so the growth(Wood) will be subdued, it is like a wounded Tiger, or say wounded growth.

Looking at the monthly variations: after an OK start in January new clouds will appear on the economic sky and investors will realize that things are not nearly as rosy as we have been told to believe recently. At best markets will (try to) hold up till March, because the FPF index stays close to neutral till March, but April-May I will be looking for some noticeable downside action. July-August and December offer the best chances to produce rallies this year. Expect the moves to be of the fast-and-unexpected variety (Tiger style), sudden shocks. Thus more volatile, contrary to the more steady moves we got in Ox year.

Given the zigzag nature of the expected pattern it is more difficult to say where the Nasdaq is likely to end the year. A breakeven year is possible, but I think it is more likely we will get another down year with the Nasdaq Composite Index ending somewhere below 2000 .

So for the moment I would stay out of most stocks and just wait for better entry levels later this year. Metal years have rarely been easy sailing.

Potential major investment themes for 2010:

• look for important news and rare breakthroughs in science, technology and medicine, also in next year 2011 – Metal Rabbit.
• a new wave of protectionism, trade wars, and more economic controls as politicians continue to increase their grip on the economy (which will fail as it always has).
• a sudden currency or bond market panic.
• major changes for Cuba, could be the lifting of the US embargo or the passing away of Fidel Castro.
• the green movement and green stocks plagued by scandals.
• separation movements become more vigorous.
• actions or violence by single individuals make the news.
• expect the unexpected, aka white tiger events…

Check back for our prognosis for gold and other markets in the coming days.

Danny

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