2010 Outlook

Summary of 2009

2009 ended the decade with a year of large down and then up moves in the stock market. The year started off by continuing a slide which began in October of 2007. By March of 2009 the S&P 500 index (the most commonly used benchmark to gauge market performance) was down 57% from the previous high. The portfolios of many investors suffered losses of similar magnitude.

In March the market made an abrupt turnaround and went up an incredible 69% by the end of year. Good news for those investors who were holding on to their investments and hoping the market would turn back up. However, even with this dramatic increase the market (and the portfolios of the buy and hold investors) was still 29% lower than where it was a little over two years ago.

While there is no way to predict what the future holds for the financial markets, there are actions that can be taken to help ensure the best possible outcome. We enter 2010 with optimism and must be prepared for whatever the financial markets bring our way. This optimism is backed up by a game plan for managing risk in the market, no matter what the future brings. The game plan is grounded in the basic economic principles of supply and demand and uses the Point and Figure methodology as the core for analyzing the market and taking action.

An example of following this game plan and acting on the signals of the Point and Figure methodology could have been moving your assets to cash for most of 2008 and to equities for most of 2009. Even without picking the exact best time to make these moves, your portfolio might be about twice the value than by adhering to buy and hold.

The Landscape entering 2010

The stock market continues to support higher prices. A key technical indicator turned positive in the first week of the New Year after being in negative territory since October of last year. The long term trend of all of the major indices is positive. Although there is no way to know how long this will last we do know that they can last a long time. For example, the trend of the S&P 500 was positive for five years from 2003 to 2008.

International equities and domestic equities are among the best asset classes. Emerging markets are leading the way in international equities. For domestic equities, small cap and mid cap continue to outperform large cap.

Commodities and commodity related equities remain strong. Although Gold has recently hit record high prices there is nothing to suggest that this trend is over. The advent of Exchange Traded Funds has made gaining exposure to many of the commodity areas as easy as buying an individual stock.

The long term trend of the US Dollar remains weak. International equities, commodities and even domestic equities tend to do better when the US Dollar is weak. Two of the best performing sectors during weak dollar environments have been Basic Materials and Technology.

Constant Monitoring

I continue to monitor the market daily so I can provide my clients with real-time advice to help protect their portfolios from major losses and to increase their portfolios’ value when the market is in an uptrend.