2010 Stock Market

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At the beginning of January the majority of analysts were calling for a positive 2010 the only difference between these calls was how much the market was going to increase. We decided to give you our perspective on what we think is going to happen in 2010 and the decade to come. To understand where we are headed in the markets it is important for us to look at where we came from.
2008 Financial Meltdown
The past two years have been very interesting to say the least. In 2008 we have one of the worst financial meltdowns of the century and in 2009 the market posted on of its best years in recent history (though it's still down around 40%). The 2008 market crash really showcased how the "geniuses" involved with banking on Wall Street had absolutely no clue as to what was going on. They had become drunk off of the easy money supplied by the Federal Reserve over the previous six years which was causing prices to rise in all asset classes (that "easy money" was a result of the internet bubble back in 2000 and 2001).
Ignorance was the main cause of the meltdown that stemmed from sub-prime mortgages. Almost no one in the banking or regulating industries had any idea what a CDO was or what is was made up of even though they were the ones selling them. These companies were only doing what benefited them in the short-term without putting much thought into what will happen a few years down the road. The problem that a lot of inexperienced investors had over those two years was deciding when we were in a Bear Market and when we were in a Bull Market. They were paying way to much attention to the economic news and not what the charts were telling them. The problem with listening to the news is when the news is great the market usually tops and this is when a lot of average investors enter the market visa versa for market bottoms. They also become very slow to act on the great opportunity presented by a market bottom because they become accustomed to the market falling and can't get out of that mindset.
When the market goes against the average investor they have a tendency to listen to someone on CNBC or a blogger that tells them exactly what they want to hear. The fact is you CAN'T become successful in the markets if all you do is base your decisions off of economic news and data.
The Lost Decade
The most important thing that we should take away from the last decade is the "Buy and Hold" strategy that Wall Street and your financial advisor has sworn by is useless. Now if you want to argue with us about how over any given 20 year period stock have consistently outperformed bonds, money market funds and blah blah blah go ahead, knock yourself out. If you want to make real money in the market and don't feel like waiting until you retire to recoup all of your losses then you need to develop some sort of investing strategy that helps you to time the market.Coming up with a timing indicator is very simple and could just involve the use of two larger moving averages. When those moving averages cross you'll know you have to either pull your money out or start shorting. By having a timing indicator you're ready for any market situation; whether it's extreme volatility e.g. 2008 or just steady growth like the late 90's.
2010 Forecast
That said let's start talking about what our forecast and plan is for 2010. Don't think about running off and buying up every stock that you see in hopes that it will return to its 2007-2008 highs. The market has already rallied a huge amount since March 2009 and there isn't much steam left. We do think that the market will trade in a relatively sideways pattern until the summer months at which point it will break either to the upside or downside (we are leaning towards an upside break to the 1250 or 1300 mark on the S and P but we'll just have to wait and see what happens). Even if it does break to the upside there we see only limited gains. 2010 is really going to be a stock pickers year unlike 2009 where everything rallied significantly, 2010 will probably only see gains in a couple of sectors. So we are only going to looking at stocks which are strong fundamentally as well as strong technically to invest in.
The Next Decade 2010-2020
We aren't going to sit here and try to predict what's going to happen over the next decade, but there are some possibilities that we are leaning towards. With everything that is happening around the world (printing of money, sovereign debt problems etc.) we think the next decade we will be in a trading range. It may be comparable to the late 1970's where the market went nowhere and stayed in a trading range after the Crash of 1974.