Market Prediction 6/22/12

So what is the market prediction between now and the rest of the year?

The market seems to be suffering lately from lots of bad news.  Some of it our own economic data and plenty of overseas news (esp., Europe) as well.  I don’t see this changing significantly in the near future.

However, it is a presidential election year.  The first way to view it is from incumbancy:

    • When incumbants win, the market tends to go up in a fairly stable way throughout the year.
    • When incumbants lose, the market tends to have a nasty drop beginning around September but a nice bounce after the election.

The second way of viewing this is from the perspective of the party.  In this case, we see:

    • Regardless of whether you have a newly elected Republican or a re-elected Democrat, the market tends to perform very well during the election year.

So, consider this mix:  a weak economy, vulnerability to bad news, the historical tendency to have a weak-flat summer, and the likelihood of economic uncertainty and consumer sentiment being depressed by the election media.  At a minimum, it is a high-risk trading environment.

It would seem reasonable to stay conservative at least until toward the end of August.  Because utilities tend to do well during these periods, I plan to stay with them.  I am also going to hedge my positions by adding some treasury notes and a hedge fund; these are primarily in case we have a really big drop.  It won’t protect me completely, but they will soften the blow.

By early-August, I will start re-evaluating my positioning.  I will either reduce my market exposure significantly or I may just get more hedges to neutralize any downward drop during September-October.

By election day (plus or minus a couple weeks), I plan to be fully invested in bullish securities for the remainder of the year.

It is helpful to articulate an overall plan and strategy.  That way, I have something I can use to measure market activity and my performance.

And, of course, if anything changes, so will I.

Tell me what you think!