Why You Can't Trust Wall Street's Predictions for ...

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Why You Can't Trust Wall Street's Predictions for 2012
BySimonMaierhofer|ETFguideTue,Dec27,201110:01PMEST

Ittakesyearstobuildtrustandonlyaninstanttodestroyit.Whenitcomestomarketforecasting,trustisessential.CanyoutrustWall Street's2012forecasts? WhatifYouTrustedWallStreet's2011Forecast? 'FiveWallStreetheavyweightssayit'stimeforindividualinvestorstoshuntheperceivedsafetyofbondsandgetovertheirfearofthe U.S.stockmarketsotheycantakeadvantageofwhattheypredictwillbeathirdstraightyearofsolidgainsforstocksin2011.' Beforeyougooutandbuystocks,bewarethatyoujustreadthe2011outlookprintedonthefrontpageofUSAToday'sDecember17, 2010edition.USATodaywasn'ttheonlyonedistributingWallStreet'sKoolAid. 'Outlook2011-10strategistsseetheS&P500finishingnextyearat1,373'-Barrons,December18,2010 'Longwayfromdogdays:2011mightseerecordDow'-AP,December17,2011 'GreenspansaysU.S.economyisgainingmomentum,mayexpend3.5%nextyear'-Bloomberg,December17,2010 2011CasualtyReport WallStreet'sbullishoutlookpaidoffforthefirst34tradingdaysof2011,butstartinginmid-FebruarythemajorU.S.indexesalaDow Jones(DJI:^DJI-News),S&P500(SNP:^GSPC-News)andNasdaq(Nasdaq:^IXIC-News)sufferedaseriesofsetbacks. AsthechartoftheS&P500belowshows,therewasonemajorhighandonemajorlowalongwithanumberofminorhighsandlows withinageneraltradingrange.

WhatwasWallStreet'sadvicerightbeforetheMayhighandtheOctoberlow?Buckleup,enjoytherideandgetreadytomakeabrand newNewYear'sresolution. GuiltyonAllCounts TheS&P500toppedonMay2at1,370.58.IronicallythatwasthesamedayOsamaBinLaden'sdeathhitthewire(somuchfornews drivingthemarket).HerearesomeheadlinesfoundrightbeforetheMayhigh: 'WorldrevsupU.S.profits'-WallStreetJournal 'GECEOImmeltsaysglobaleconomyisimproving'-AP

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'TheS&P500breaksout'-YahooBreakout 'TheDow'sgoingto20,000'-Yahoo 'SalesGrowththebigsurpriseonWallStreet'-AP 'BuffettsaysoddsofanotherU.S.bankingcrisislow'-AP Quitetothecontrary,theMay1ETFProfitStrategyNewsletterrecommendedtogoshortat1,369withatightstop-loss.Thistradewas inlinewiththeoutlookprovidedintheApril3ETFProfitStrategyupdate:'Intermsofresistancelevels,the1,369-1,382rangeisa strongcandidateforareversalofpotentiallyhistoricproportions.' Overthenextfewweeks,thenewsletterrecommendedtolockinprofitsacoupleoftimes,butmostimportantlyreaffirmedits recommendationtogoshortbeforethesummermeltdownoccurred. ThePerfectSeeSaw FromJuly7toOctober4theS&Plost20%.OnSeptember23,theETFProfitStrategyNewsletterforetoldthat:'FromitsMayhighat 1,370toitseventuallow,theS&Pwilllikelyhavelostabout300points(22%).Thiskindofmovevalidatesacountertrendrally.The planistosquareshortpositionsandbuylongpositionsaround1,088.Therally,onceunderway,willprobablyre-inspireacertaindegree ofconfidenceintothemarketbeforeitrunsoutofsteam.ThemostlikelytargetforthisrallyisS&P1,266-1,282.' BynowyouprobablyguessedthatWallStreet'stakeonthemarketwasdifferent.Here'sabriefsampleofheadlines: 'Thinktheeconomyisbad?Youhaven'tseenanything'-CNBC,October3 'S&Pentersbearmarketterritory'-Reuters,October4 'S&Pfallstothebears'-TheStreet,October4 WhateffectdidWallStreet'sguidanceandthemedia'scheerleadinghave?OnOctober2,twodaysbeforetheonsetofamassive20%, 18daytradingrally,theAssociatedPressreportedthat:'Wildmarketrideisdrivingpeopleoutofstocks.' ThankstothelethalWallStreet/mediacombo,manyinvestorssoldattheworsttime,again. Asset-OverreachingIncompetence WallStreethadthesamerottentimingwhenitcametogold(NYSEArca:GLD-News)andsilver(NYSEArca:SLV-News). Silverspikedtonearly$50onApril28.OnApril27,theWallStreetJournalreportedthat:'Silverrushspreadstostockmarket.Investors haveturnedtopreciousmetalsamidworriesaboutinflationandtheweaknessintheU.Sdollar.Themetalsareincreasinglyconsidered attractiveasapermanentstoreofvaluethatdoesn'tdiminishlikepapercurrencies.' TheApril25ETFProfitStrategyupdatepointedoutsilver'sgapupopenandwarnedthat:'Thegapupopenmayhavebeenanexhaustion gapandcautionsthatahistoricreversalmayhaveoccurred.' TheNextProfitOpportunity TheOctober4lowprovedtobeagreatbuyingopportunity.SincetheS&Preachedmytargetrangeof1,250-1,300however,the performancehasbecomestale.ViatheNovember30ETFProfitStrategyNewsletterIassumedthat:'Basedonseasonalityandtoday's volumeitappearsthathigherpricesarelikely.Iwouldliketoseeaslowgrindwithinthe1,226-1,xxx(reservedforsubscribers)range. ThiswouldsuggestavirtuallyuntradeableDecemberfollowedbyanothergreatopportunity.' This'greatopportunity'isnotherequiteyet,butaquickglanceatVIXshowsthatvolatilitycreatesadoublebottomin December/January,whichusuallycoincideswithaJanuarytopofsomesortforstocks. TheETFProfitStrategyNewsletteridentifiestheupsidetargetofthisrallyandthemustholdsupportalongwithaconcise,easyto understandshort,midandlong-termforecast.

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