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2012: A tale of two markets

amny

amny

The stock market celebrated the New Year with a 200-point rally on Tuesday, and we would be wise to watch how equities settle today: Historically, when the first week of trading is positive, the entire year has also been positive 77% of the time, with an average gain of 11.8%.

Of course, past performance is no guarantee of future results, and that axiom has never been more acute. With a tab of $7.6 trillion in global debt due this year, the fate of our financial future has arrived at a binary juncture with very little middle ground.

On one side, there is the system formerly known as capitalism. If markets are finally allowed to trade free, we'll enter a period of asset class deflation (lower stock prices) and debt destruction (haircuts) that will pave a positive path for future growth. This is the inevitable medicine, and is cumulative in size and scope. The other side of the coin is presumably preferred - but comes with a profound cost: The engineering of financial markets by policymakers stateside and abroad is administering drugs that mask the symptoms while exacerbating the underlying disease. While this is designed to buoy asset classes and buy time for a legitimate recovery to unfold, it will continue to manifest through social unrest and income disparities.

Here's the twist: The doom and gloom has been pervasive in the mainstream media, which paradoxically bodes well for stocks in the near-term. We at Minyanville identified a technical pattern last month that hinted at an 8-10% rally for the broader market indices, and that remains in play. _Given how risk-adverse fund managers currently are - and weaving in the fact that it's an election year ripe with political agendas - there is a window of upside opportunity (and it's just that, a window) before reality bites later this year.


Todd Harrison is the author of "The Other Side of Wall Street" and the founder and CEO of Minyanville, an Emmy Award-winning financial media platform. Read him daily at www.minyanville.com.

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