aarc

Constructing a Cautious Portfolio for 2010

Bin Laden's objective of destroying the American economy had actually come true.

Courtesy of the American people themselves.

By distracting the american people from the task of recovering from the dot.com disaster of 2000 to 2002; the US had lost track of the more important task at hand, which was an economic recovery - and in the process got involved with 2 expensive wars that broke the backbone of the american economy.

This time around. The US has gotten rid of a warrior and instead is now being led by a peace-loving president with an eye toward a truly lasting economic recovery.

The whole world witnessed and comensurated with the US sufferings during and after the 9/11 disaster. an Alliance had been formed to fight wars against Iraq and Afganistan.

This time around; the US is leading another Alliance. Not to fight a military war or several wars - but to fight another global economic disaster from ever happening again.

This global economic disaster of 2007 to 2009 started in the United States, thus it must be corrected right at home with the assistance of the "Economic Alliance" as the whole world recovers from the "financial crisis of the century".

That is the BIG difference.

Constructing a Cautious Portfolio for 2010

This time around is TRULY different!

When was the last time the United States attempted to make an economic recovery?

That was from Oct 2002 to Oct 2009. A five-year attempted recovery.

But that was not a true economic recovery. It was an expense riddled rally by the stock markets supported by the desire of the American people to wage war against terrorism as an aftermath of the 9/11 disaster - rather than the determination to recover from the economic disaster of the tech wreck and the flight of manufacturing to the developing countries from 2000 to 2002.

Waging 2 wars against Iraq and Afganistan is definitely NOT the right receipt for a true economic recovery. Since when in recent history of the US that a war against another nation results in an economic recovery?

The war in Vietnam had been very expensive and so does the cold war with the USSR and China. Only when the USSR disintegrated and the Chinese started to embraced capitalism did the United States truly experienced a massive boom into the year 2000. But like every massive booms such as the Tulip Mania of the 1600's, the dot.com mania has ended that massive boom from 1980 starting in year 2000.

This time around, the US government, the Amercian people, and Corporate America are not expending Time, Money, and Resources toward fighting 2 wars and keeping it's robocop war machineries in tip top shape. We spend more time these days on how the economy is performing rather than watching how stealth bombers drop MOABs into the enemy lands.

The lessons of 2002 to 2007 that led to the "financial crisis of the century" causing the stock market downfall of 2007 to 2009 is the "wake up" call to every American.

Economic recovery cannot be achieved by knee-jerk emotional reaction to the challenges of life.

There will be more challenges ahead. The attempted recovery from 2002 to 2007 took almost exactly 5 years.

We are only 10 months into this "economic" recovery. We still don't know if another 9/11 and/or another Katrina disaster are going to happen.

For now, at least, the US government, the American people, and Corporate America are taking the necessary steps toward a TRUE economic recovery.

And like any type of recovery efforts, there will tumbles and fumbles along the way.

Wall Street's 2010 Outlook

Thanks for the research TickerSense. That is a great eye opener if not a light (hopefully not a freight train) at the end of the tunnel.

Technically speaking; this ongoing rally by SnP500 has a low target of 1146, a usual target of 1160, and a limit run of 1178 before we go into another consolidation similar to the last few weeks of consolidation range that can last 3 to 6 weeks. Then we rally again toward 1178 or a little higher.

After that run. Spx should go into a major correction lasting more than 10 months and can last a year and a half or two. The major correction is expected to result in a mini-recession but a lot less worse than the great recession of 2008 to early 2009.

That is the 1st scenario.

A 2nd scenario is that SnP simply go into a vertical rally that will break above 1230 before we go into at least 4 weeks of consolidation range in preparation for a final rally toward either the normal target of 1262 or the high side target of 1315. All within the first half of 2010. Toward the midpart of 2010 will have to be spent with a big consolidation range lasting 3 to 6 months similar to that of Aug-Nov consolidation range but of a different pattern. Then another rally that should break above 1262 and may be able to reach or exceed the 1315 upper target before 2010 ends. A mini-recession should then follow into the year 2011-2012 before a bigger rally that will reach or break past the 2007 top of 1576 can happen on or before the end of 2013.

The SnP500 has already completed the necessary corrective patterns from early August to November 2, 2009 in order to be able to support either of the two scenarios.

It is not easy to explain the technicalities for those price projections. But an in-depth knowledge of advanced Elliott Waves analysis will enable undertanding why those price projections are high probability targets. Only that it is not possible to ascertain with high confidence at this stage which scenario has a higher probability of actually happening.

Step by step. First, our objective is the psychological target of 1150 then re-access the situation. We still don't know what the January 2010 earnings season will bring. More likely a bacon. Bacon with ham will be better, and some ice cream and wine too if possible.

Those SnP price targets by the major banks are not so far-fetch at all. They are achievable using technical analysis alone. Whether they use fundamental analysis or technical analysis or a combination of both we don't know. Most if not all of them have their own teams of FAs and TAs. Some of them have outside sources of experts to tap into.

For us, mere mortals, the best we can do is play the game the big players want to play.

Wall Street's 2010 Outlook

The past is history, tomorrow is a mystery, and today is a present and thus is a gift.

Forward and onward to 1,150 for SnP500 as a conservative target. Much has been accomplished in the last 10 months. It is a no brainer that past mistakes are being rectified and the firewalls to preventing another disaster are being set in place.

The higher we go, the better the chances SnP will be able to recover the last high of 1,576 on or before the end of 2013.

Unlike the 5 years recovery of 2002 to 2007 from the tech wreck of 2000 to 2002. This recovery is going to be long lasting. Much longer than 5 years.

The knee-jerk emotional reactions to the disaster of 9/11 compounded the economic disaster of 2000 to 2002 that resulted in the "financial crisis of the century". This time around, we learned our lessons.

Doom and Gloomers can wallow into their misery.

They can never learn a lesson fast enough to be able to catch up with the rest of us. They can keep living in the dark crevices of their self-imposed caves and cages.

The Ten Worst ETFs of 2009

Most numbnuts buy at the highs and sell at the lows.

Don't be a numbnut.

The Ten Worst ETFs of 2009

UNG lost 87% of it's price from the high of $63.90 to $8.50 in approx 18 months.

For it to be able to recover those losses, it will have to rally 554% from the last low.

That is how profitable buying at the bottoms can be. A lot better than just shorting things and getting a theoretical 100% profit out of short positions.

The Ten Worst ETFs of 2009

Boy, am I glad I kept buying UNG on the way down.
Buy when it was at it's worst.

I can sell them on the way up.

It is amazing how UNG can lose so much in so little time and then start jumping up like there is no tomorrow.

Buying at the bottom definitely is starting to pay off. For the last 11 days of sustained rally, it was able to jump 27%. At this rate, it is rallying at a faster rate than when it was going down from early October. A very positive development helped by the initial cold fronts in the US which is expected to continue till March 2010.

Japan, The U.S., And the Lost Decades

It is all about timing.

Chasing a young market while it is in rally mode will cut you deep once it corrects. And they correct very fast and very deep if you don't know how to time and trade young markets or stocks.

Japan, The U.S., And the Lost Decades

Like almost everything in this world.

Young and small things grow faster in relative percentage terms if not in overall size than mature things. Trees, bees, fish, snails, chickens, elephants, airplanes, buildings, human, money, stock markets.

Mortality rate among the young ones is also higher.

Dow Jones in it's younger years suffered 89 percent haircut from 1929 to 1932. The young Chinese market suffered 72% haircut in 2007 to 2008 while the relatively mature Dow Jones suffered only 54% from 2007 to 2009 and the more mature DAX market of Germany suffered much less. Nasdaq suffered 80% haircut from 2000 to 2002.

But then, the younger ones tend to bounce or rally higher in percentage gains off their last lows.

For example:

Nasdaq went down more than 80% from 2000 to 2002 while Dow Jones grudgingly gave up 39%.

From 2002 to the high of 2007; Dow Jones was able to appreciate 97% while the young Nasdaq was able to appreciate 158% from it's 2002 low.

So if you bought the dog which was Nasdaq in Oct 2002 instead of macho Dow Jones, your money would have more than doubled in Oct 2007 while buying and selling Dow Jones at those exact bottoms and tops (if anybody can do that) would only result in less than double the capital - despite the fact that Dow Jones went over it's 2000 high of 11,750 and onward toward 14,200 while Compq was only able to go up to 2861 in Oct 2007, far below it's last high of 5133.

Japan, The U.S., And the Lost Decades

For the United States; Here is my take:

Look at the SPY which is the ETF for the broad index SnP500.

2008 was the year the battle has been fought the hardest. The bears won but so were the buyers at the bottom. November was an all-time high in terms of volume traded. That was where the big players bought whatever they can when the general public was in a panic state. After the panic of Nov 2008; the capitulation happened in March 2009 as attested by the volume spike but of lesser amount than that of Nov 2008.

On the yearly chart. 2009 rally performance is similar but a lot better than the preceding rally before the meltdown which was 2003 after the tech wreck of 2000 to 2002. Volume in 2009 far exceeded that of 2003 rally.

A very encouraging indicator. Big investors bought a lot more in 2009 than they did in 2003 after the dot.com bust.

But of course we ended up with a flat-liner decade after 2 decades of rally from the early 1980 to 2000.

Previous to that was more than 3 decades of rally off the 1932 bottom and into 1965 where Dow Jones seemed unable to break the $1000 ceiling. That 3+ decades of rally was blunted by 1-1/2 decades of consolidation ranges. A lost 1-1/2 decade at that time. Similar to what we had these years but longer, commensurate to the more than 3 decades of rally off 1932 bottom.

That is just how things work whichever timeframe you look at. Yearly, monthly, weekly, daily, or intraday charts. Rallies will have corrections or consolidations in order to support further rallies. Big and time consuming rallies will have their corresponding big and time consuming corrections or consolidation ranges.

We rally again. A decade or 2 or better still 1-1/2 decade will best fit the decade chart if they can produce such chart using the computer. For now, you can do the charting manually on paper.

Rallies tend to taper off when the rally off the bottomest bottom started with a bang. And the rally from 1932 to 1965 was surely a big bang if not in price per se but in the percentage amount as Dow Jones rallied from $42 to $1,000. That was a 2,280 percent rally off the bottom. The rally from around $770 of 1982 to $11,750 of year 2000 was bigger in terms of numerical amount but amounts to 1,426%. The next few decades of rally should be lesser than that in terms of percentages as rallies tend to be hindered by the law of gravity as the price goes higher.

Then we will see if that final rally will be the topping pattern for the United States as it has risen to becoming the the number one global power in the world in the last century sustained into the early part of this century - or will it be able to consolidate all those gains and make do with further rallies in the latter part of this century.

Rallies tend to go in 3's with 2 corrections or consolidation ranges in between -- before the next bigger correction or consolidation range can happen. We did have 2 rallies so far since the Dow Jones "died" in 1932 and 2 corrections since then when viewed on the decade chart, one bar being one decade.

This time around, we have China, India, Russia, Brazil, and a host of other emerging markets to recon with in terms of economic performance. Japan is a secluded market and should be excluded from the race unless they change their trading habits.

But unlike military confrontations where the rise of a victorious warrior means the defeat of another; economic competition will often result in both gaining grounds as they compete with each other. There will be 1st, 2nd, and 3rd winners to say the least.

For now, we enjoy this ongoing recovery rally off a devastating bottom while we are still alive.

Japan, The U.S., And the Lost Decades

The United States is not Japan.

Japan had chosen to be secluded from the rest of the world in order to preserve their homogeneous society. They suffered in the global trade as they keep their outlook inward rather than outward.

But look how successful they are in their own way.

Last time I read an unemployment report way back April 2009; they had their worst so far in more than 2 decades = a 3.5 or 3.75 percent unemployment rate. And Japanese are still working their butts out in order to cope up with ever increasing workload to serve their own needs. They have a closed society, remember?

How is that for comparison.

They prefer a secured and uneventful life rather than the helter skelter of the stock markets and the economy that goes with it.

Natural Gas: Unlimited Demand in the Long Term

Investing in natural gas these days is like prospecting for gold deposits BEFORE the gold rush.

What will happen before the Natgas rush, or whichever alternative energy away from the traditional coal and oil supplies, is/are still an unknown.

What we know for now is that the whole world seems bent on having a clean environment never seen before in the history of mankind.

A better approach would be investments into UNG etf since NG futures is more suited for trading than investing. Nat gas is more suited for industrial applications where the volume of consumption will justify the expense of pipelines. LNG is a way off the horizon for the United States and can take several years if not decades before the US goes into LNG production, if ever.

Another allocation to TAN, which is the etf for solar energy companies. Solar energy can become the future in-house power generators for most households. Cost of installation and questionable equipment lifespan are still the major hindrances toward embracing this technology.

Then perhaps another allocation to URRE, a company mostly involved with uranium mining and development. Uranium is a wildcard that can become extremely profitable if and when the US is forced to put nuclear power back into the table. For now, URRE, like almost everything else, is suffering from the 2007 to 2009 meltdown.

Sentiment Overview: Insiders Decisively Bearish

Looking at the Dow Jones chart from 1900 to present.

A massive rally started in 1922 that topped out into 1929. 7 years of rally that resulted in an extreme meltdown toward 1932. That 7 years rally was presumably a part of the rally since the 1800's. Unfortunately, I do not have chart that shows how the rally progressed during the early part of western industrialization that culminates into the topping process of 1929.

A massive rally started 1932 toward 1966. A 34 years of rallies that was blunted by Dow Jones 1,000 ceiling until year 1982.

Then from 1982, another massive rally toward year 2000. An 18 year rally where Dow Jones suffered another minor meltdown; then a minor 5 years rally culminating in a major meltdown of 2007 to 2009. Spx went into a double top in year 2007 unlike Dow Jones which produced a headfake into 14,200 of Oct 2007. Definitely, the rally from 2002 to 2007 is a bear rally rather than a bull run and must be considered corrective rather than impulsive.

Based alone on those massive rallies and massive meltdowns taken in their context; we should be heading toward another multi-decade rally after this meltdown that is comparable to that of 1929 to 1932.

Sentiment Overview: Insiders Decisively Bearish

More likely extreme bullishness at market tops after several years of rallies is a good contrarian indicator.

The last rally took 5 years from Oct 2002 to Oct 2007 before extreme bullishness took it's toll.

Before that, the US went into 20 or so years of rally from the early 1980 to year 2000.

How many years are we in a rally now?

Extreme bullishness is needed right here near the bottom in order to overcome extreme pessimism or massive sceptism among market participants.

Looking at Citibank Another Way

We have a global economy now more than ever in the history of mankind.

The global stock market meltdown of 2007 to 2009 is the confirmation rather than the denial that an inter-connected global economy does exists. And that interconnection is not a mere rubber band connection that can easily be disconnected. The interconnection is well placed and into the core of the financial systems of most nations in the world. The Dubai and Greece fiascos further strenghten the global economy concept despite their relatively minute sizes.

The 10 biggest banks in the world will face great challenges in the decades ahead on how to profit from that inter-connection.

Great risks command great rewards as well. And when you talk about a mature or maturing global scope. It is the ultimate risk that should command the greatest rewards.