by Serge Berger | December 28, 2012 8:58 am
With nonexistent volume in equity markets and only two lackluster trading days left in 2013, it’d be a mistake to overtrade. Instead, let’s look at what we can expect in 2013 for U.S. stock indices from a technical point of view.
Each December the research departments of investment banks and brokers publish their detailed economic forecasts for the upcoming new year, usually with a gutsy year-end target for stock indices. I don’t envy those analysts, because nailing down a 12-month forecast with so many moving pieces is something of a mug’s game. And there are plenty of unknown variables — fiscal and monetary policies both in the U.S. and abroad could well shape the fortune of markets yet again.
For the above reasons, I never set firm targets past the two- to three-month time frame … and any 12-month/year-end levels I may have in mind are wildly moving targets.
Keeping those caveats in mind, here’s what I’m looking at for 2013 for the major indices.
Click to EnlargeGiven the importance of both fiscal and monetary policies, the No. 1 asset I will be watching is once again the U.S. dollar. The chart at right shows performance of different asset classes since 2009, from stocks, commodities and bonds to currencies. While most assets have risen sharply since 2009, the U.S. dollar (purple line on chart) has underperformed dramatically on a relative basis — and at times displayed an inverse relationship to risk assets.
The Dow Jones Industrial Average has about another 8.5% to go to reach its 2007 highs near 14,200, which serves as my three-month target. Beyond that, given the retest of the 2007 highs and the sharp rally off the 2009 lows, a 25% retracement of the rally off the 2009 lows is likely, which would get me to a year-end target closer to 12,300.
The S&P 500 has another 10% to go before it reaches its 2007 highs near 1575, which serves as the very high end of my three-month forecast. After reaching those levels I expect it to settle in for a long breather and close the year near 1350.
My more confident call on the S&P 500 for the first quarter of 2013 is 1520, which is a 23.8% Fibonacci extension of the June-to-September rally.
The Nasdaq Composite has already sailed well past its 2007 highs in part thanks to Apple (NASDAQ:AAPL), but I do expect the index to revisit its 2012 highs near 3200 as my three-month target. By year-end 2013 I expect this index to have retraced a good portion of the 2009-2012 rally as well, settling closer to 2700.
Last but not least, the Russell 2000 looks to be in the most bullish position for 2013, as it has routinely tested the 850-870 resistance area over recent years. On a three-month basis I see 900 as entirely reachable. Beyond that, for end of 2013 the 760 area should serve as good support.
Divining 12-month price targets for stock indices is no easy task, and my numbers above are mere gestures. But I will definitely be focusing on the three-month targets above when trading kicks off next week.
And just for reference, here’s are the returns for the above indices since the 2009 bottom:
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