My past prediction

Why should you want to follow a prediction from a nobody like me? My predictions have been on track many times, particularly for the year 2000, 2003 and 2009. In 2012, SPY (similar to S&P500 index) has a return of 13%. My prediction is 10%, off by 3%. Actually I could be very close to 100% correct if the bill on Fiscal Cliff was not passed, which would have the opposite effect on the market.

Click here for the blog for my 2012 prediction, which has been posted as comments in Seeking Alpha many times.

My prediction for 2013

First, I do not do any research. I try to digest the experts' views (especially those with good arguments), add my own opinions and make a conclusion. We should review the prediction at three-month intervals and make adjustments. Market conditions constantly change -- it is not beneficial to maintain the original prediction that was created in the beginning of the year.

Being said, I predicted that the SPY would rise by 12% for 2013 disregarding dividends. I regard the S&P500 (SPY is an ETF based on this index) over the Dow as a more accurate overall market representation.

I predicted that the market would decline by about 3% in the first quarter and then climb back up to 12%. The bill on the fiscal cliff has been passed but the root problem has not been fixed. The problem is our high debt. We will face several hurdles such as cutting further expenses and raising more revenues. Raising the debt ceiling is not a long-term solution. The market will fluctuate when the next hurdle surfaces. With this, I predict a volatile market until mid year.

Corporate profits on Q1 will not be better than expected but will in later quarters. Apple and its partners could be the exceptions with new profits from selling iPhone5 in China and newer markets in Q1.

After mid year, there are many reasons that the market will improve.

1. The EU should have solutions to their crisis. The market will react favorably even though the solutions are not good for some citizens and some countries.

2. China's economy should have improved and its internal market is growing fast. It has fixed a lot of serious problems in the past, so I do not bet against that. When China recovers, its import partners of raw materials from Australia, Brazil… will also recover.

3. Japan and India will not recover in the same pace as the rest of the world. Japan needs more citizens while India needs less. Japan's trade is suffering from the islet dispute with China.

4. QE3 and low-interest rate would lead the recovery this time. We will see how the debt ceiling and the fiscal cliff affect the flow of money. Will China be the sucker again in lending us the 'monopoly' money? China wants our trade for creating jobs at a high price. However, the Chinese must be calculating whether it is worth it or not.

5. Corporate profits will be increased, especially the global companies after Q1 if China recovers. We are all globally connected. A richer China means more iPhone and iPads sold to Chinese for example.

6. The USA may be on the road to energy independence with the shale oil and shale gas. We have to see how the extraction damages our environment. The pipe line sector will be an important but neglected so far. Without them, the extracted fuels go nowhere.

7. The two wars are ending. Hopefully they do not drag any longer.

Predictions #6 and #7 would lead us to start a secular bull market starting as early as 2016. A secular bull market usually lasts about 20 years. The last one (about 1980 to 2000) is most likely caused by the lack of war.

If there is any war with USA, then all bets are off! President Obama, take notes.

Good and bad sectors for 2013

Good sectors: Technology, Large Cap, Housing and Health Care (depending on the impact from ObamaCare).

Bad sectors: Utilities, Consumer Staples , Defense and Dividend Stocks (whose value has been above its historical average).

Risky but profitable sectors: Depending on China: Energy, Coal, Copper, and most other industrial minerals. Financial.

The benefits of a yearly prediction

It is used to plan how to invest for the coming year. If the outlook is rosy, commit more money on equities and invest aggressively, and vice versa. Upon a prediction of a recession recovery, an over-weighted equity portfolio is suggested. As my best investing years were 2003 and 2009-- years of recession recovery.

Mid-year action

Portfolios need constant manipulations as my mid-year action adjustments for 2011 and 2012 were prudent. I did not adjust both times, but they might provide valuable lessons. The rear mirror is always clearer.

I predicted 10% for 2012. SPY is about 13%, so it is quite good.
I predicted 6% for 2011. It is about 2%. It is a little off, but it is still on track.

The mid-year (July 1) audit for 2012. The SPY's annualized return was 14% (7% YTD) and it was 4% (= 14 - 10) above the predicted 10%. However, we should still have another 3% return (= 10 -7) for the rest of the year according to my prediction. Hence, we should not be too concerned. In reality, it gained about 6% from July to the end of 2012.

The mid-year (July 1) audit for 2011. The SPY's annualized return was 8% (4% YTD) and it was 2% (= 8 - 6) above the predicted 6%. The SPY should lose 2% (= 6 - 8) for the rest of the year according to my prediction. In such cases, the portfolio needed to rest in cash, be conservative and/or buy contraETFs. If that were done, we would avoid the 5% loss from July to the end of 2011.

Conclusion

My last recent market predictions were good for 2011 and 2012. The market was not rational for some years. I do not predict that my future predictions including the one for 2013 would work every time. Market prediction is not a precise science and the constantly changing dynamic factors alter the landscape. However, it is better to stick with a good prediction than not, and in the long term, it works.

Act on current events being surfaced and adjust our portfolio prediction accordingly.

Disclaimer. I am no responsible for your actions in your investment. Treat this article as educational information and past performance does not guarantee future performance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.