2010 Predictions (Since I did so well in 2009)

Happy New Year. Depending on your perspective, 2009 was either a great year, or a not so great year. Either way, it’s done, and it’s time to get on with 2010. But first, some left over business from 2009.

At this time last year I invited readers to make their predictions for 2009. You can read their predictions on the 2009 Predictions page. Each quarter I reviewed their predictions, and you can read the full reports for the first quarter of 2009, the second quarter, and the third quarter.

For December 31, 2009 the consensus, a year ago, was that the price of gold would be $1,337, and it actually closed the year at $1,096, so we were overly optimistic. However, Croaker predicted $985, and Uboat predicted $1,000, so they get “closest to the pin” honors. (Uboat remains active on the Forum; we haven’t seen Croaker since just before Halloween, so hopefully he shares his expertise with us again soon).

For December 31, 2009 the consensus, a year ago, was that the Dow would close at 8,695, and it actually close the year at 10,428, so the easy winner was Uboat, again, with a prediction of 10,000. Well done. Obviously the rest of us were either overly pessimistic, or we under estimated the impact of massive government stimulus.

For the year, Croaker was the gold prediction winner for March 31 and second to Uboat for December 31, and DavidSLane was the winner for June and September.

For the year, the Dow prediction winners were Designer for March 31 (and we haven’t seen him since August); DavidSLane and REM for June 30; Richmanch for September 30; and Uboat for December 31.

The overall winner is DavidSLane, who had his name in the winner’s circle more than anyone, and managed to end the year near the top. Well done David. What’s he thinking for 2010? You can read his 2010 predictions on the DavidSLane 2010 Predictions page.

My Predictions for 2010

Here’s the short version: who cares what I think? My predictions were wrong last year, and may very well be wrong again this year. For those who care, you can read my numerical predictions on the JDH 2010 Predictions Page. The quick summary is that I think gold will rise in 2010, for the reasons I described last week in my commentary on Why Gold Will Continue to Rise in 2010. I also believe the Dow has the potential to rise in the first quarter, primarily because the U.S. government will continue pumping money into the markets like they did in 2009. However, at some point the air will come out of the balloon, and the markets will fall as the year progresses.

In fact, it’s quite possible that the air will come out of the balloon this week. Many traders made money in 2009. So, to lock in profits, the ideal time to sell is the first week of 2010, so that you can defer paying taxes on those profits until tax time in 2011. (If you had losers in 2009, the time to sell them was before the end of December, so that you could apply those loses against other gains and minimize your tax hit). I’m not a big fan of the technicals at this point either: here’s the Dow:

Support for most of 2009 was around the 50 day moving average, and with the Dow at 10,428 and the 50 DMA at 10,265 we are not that far above it. A drop below that level would be bad news. The red down trend line drawn off the tops in 2007 and 2008 is also resistance; if it gets broken, things may get ugly.

Another number to watch is the Relative Strength Index. All else being equal, an RSI rising above 50 is bullish, and a fall below 50 is bearish. The vertical purple lines show the last two times the RSI dropped below 50 after a period above 50, and both times were bad news. The RSI has stubbornly held above 50 most days since the summer, so a decisive break below that level will send the technical traders to the exits.

Finally, the Dow was making new highs as the year ended, but it was on very low volume, and with negative breadth. Generally that’s a sure sign of a top.

My plan? I’ll probably do nothing, but if I’m feeling adventurous I may pick up some RSW – Rydex Inverse 2X S&P ETF, or perhaps by some puts, or do a covered write on some puts.

In closing, let me remind everyone why I started this web site back in November, 2006. I started this site, and I have recorded my thoughts every Saturday morning for the last 160 weeks so that I have a record of my thought process on every decision I make. What was I thinking when the markets were bottoming on March 6, 2009? In my March 7 commentary I said I was buying, which was a very good plan. Of course I should have kept buying, and I didn’t. I sold out way too early. But that’s the point. I can review my mistakes, and hopefully learn from them.

I encourage you to do the same. Write your predictions down. Or post them on the 2010 Predictions page on the Buy High Sell Higher Forum (which is also a good place to discuss what everyone else thinks).

I maintain this site to learn. To learn from my mistakes, and to learn from each of you. This is not a money making venture for me. The ads that run on this site generate almost enough money to pay the cost to host the web site each month. But that’s fine, that’s not the point. The point is to learn, and that’s what I plan to do in 2010.

Happy New Year.