Friday�s closes are the most important inputs to my proprietary analytics because we begin the New Year with new weekly, monthly, quarterly, semiannual and annual value levels, risky levels and pivots.
Before I use the new numbers to project the risk/reward for the U.S. Capital Markets focusing on U.S. Treasuries, Comex gold, Nymex crude oil, the euro versus the U.S. dollar, and the major U.S. equity averages, let me define again my terminology.
These levels are calculated in weekly (W), monthly (M), quarterly (Q), semiannual (S) and annual (A) time horizons, based on the past nine closes in each time horizon. My theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock. These levels are the most important element of my buy and trade strategy.
Buy and trade guidelines: Investors should consider entering �good until cancelled� (GTC) limit orders to adjust positions when/if share prices reach a value level on weakness, or reach a risky level on strength. A pivot, when one exists, acts as a magnet between value levels and risky levels.
U.S. Treasury yields: The yield on the 10-Year U.S. Treasury ended 2011 at 1.876 percent and traded in a range between 3.774 on February 10 to 1.671 on September 23, which was a test of my semiannual risky level for 2011. I have a semiannual pivot at 1.903 for the first half of 2012. A first quarter risky level at 1.687 should be the downside for this yield through March. Given additional volatility my annual value level is 2.502 with monthly and semiannual risky levels at 1.409 and 1.385.
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Comex gold: The price of gold ended 2011 at $1,565.0 the Troy ounce. I believe that the gold bubble popped after a new all time high was tested at $1,923.7 on September 6. A clear sign of the bopped bubble was the break of the 200-day simple moving average on December 14 for the first time since January 2009. For 2012, I show an annual pivot at $1,575.8, which suggests that gold, should not crash either. The downside for 2012 is my annual value level at $1,388.4 with upside to semiannual risky levels at $1,635.8 and $1,659.4. The maximum upside is a quarterly risky level at $1,740.9.
Nymex crude oil: The price of crude oil ended 2011 at $98.86 after annual pivots were tested many times during the year and in December at $99.91 and $101.92. Oil traded as low as $74.95 on October 4 and as high as $1,14.83 per barrel on May 2. I predict that oil stays in its 2011 trading range in 2012 influenced by a quarterly pivot at $99.87 through March. My semiannual value level is $79.83 with semiannual and annual risky level at $104.84, $103.58 and $117.00.
The euro versus the dollar: The euro ended 2011 at 1.2942 after declining from 1.4941 on May 4 to a low of 1.2861 on December 29. We begin 2012 with monthly and quarterly value levels at 1.2780 and 1.2499 with a semiannual pivot at 1.2980 and annual and semiannual risky levels at 1.4239 and 1.4405.
Dow Industrial Average: The Dow ended 2011 at 12,218, up 5.5% for the year. Most of the year saw the Dow trending lower however from the May 2 high at 12,876.00 to the October 4 low at 10,404.49. The up trend that went back to March 2009 was broken to the downside as August began. My numbers for 2012 supports my view that it�s highly likely that the Dow will stay below its 2011 high in 2012. The bullish scenario requires that my new annual and quarterly risky levels at 12,312 and 12,478 be taken out early in 2012, as my annual risky level is 14.032. The odds of this happening are less that 10%. If the Dow stays below 12,312 and 12,478 the risk is to my monthly value level at 11,210. There�s a 20% chance that the Dow will decline to my semiannual value levels at 8,425 and 8,336 in the first half of 2012.
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