There is one interesting observation I made while analyzing chart of SPX. It closed the year almost exactly at the price where it opened one year ago. The gain in stocks last year was a flat zero. I think the recent development in broad economics has brought us to the stage when buy and hold approach style of investing into stocks will fail miserably. Every rally in US stocks in last two years has been driven by some political factor, like printing more money to support investment of banks. The main property of such rallies is their lack of longevity. If there is no new technology which would start new wave of hiring and money making from production, there is simply no way we can expect any of these rallies develop into a bull market, like one we witnessed in late 90's.
Thus I still fully expect the year of 2011 was just one giant topping process before a 2012 bear market. I have no clue on earth how long and how deep will it take to bottom, but the first half of 2012 should have a strong downside bias. I don't expect anything near to a 2008 plunge, but correction should still be quite dramatic, taking at least 40% off from current levels.
Gold has clearly completed it's cyclical bull market that lasted from 2008. The easy money times in gold are over for some time and anyone buying "every dip" will probably get completely discouraged until this cyclical bear finally bottoms.
I've been drawing the green and pink trendlines for months now. I expect gold will end its correction on one of those lines, although I am about 90% convinced it will go below the green line. People tend to think that gold is a safe haven when stocks go down, but the massive liquidation event of stocks and gold in 2008 prooves that this is simply not true. If stock market really goes haywire, it will almost certainly take commodities down also. So, I expect gold will bottom in March or April 2012 as stocks complete their second stage bear market correction. In 2008 bear market gold bottomed six months before stocks and it should be the same this time also. As stocks will probably work their way into the third bear phase, gold should consolidate during this period, setting the stage for another cyclical bull market, that should take price of an ounce of gold up to 5000s area. I base this projection on development of past cycles. But then again, this is a bull market. The final stages of all bull markets tend to dwarf even the most optimistic predictions. So, no one should be too surprised if we see gold trading above 10000 three years from now.
My long term strategy for 2012 is simple. First of all I want to preserve my capital in face of weak markets. I have no intention to trade heavily into any direction in any instrument. The real money will be made when stocks and gold bottom and start their next cyclical bull run. It will surely take a lot of patience, but it should pay off heavily. I would also like to say a word about shorting. Everyone knows stocks are in a bear market. Everyone is talking about shorting indices or individual stocks is a way to go strategy in the next couple of months. But from my experience shorting is an extremely difficult task. Permabears consistently get dissapointed for that rare instances when everything lines up for them. I do plan to take some positions in inverse stock market indices ETFs, but they will be small, and everything will have to look just perfect for a bearish setup.
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