by Steve Christ, Money Morning
Every year Money Morning comes out with our forecast that predicts the market action for the next 12 months.
It's built on a system that Chief Investment Strategist Keith Fitz-Gerald spent over 10 years perfecting. He calls it the "Geiger Index."
Based on "fractal theory," it's similar to models used to predict hurricanes, interpret digital satellite data and even avert cyber attacks. It works by looking for patterns so complex they are beyond traditional analytics.
The amount of raw data this program crunches is extremely large. In fact, it takes a series of computer servers 14 hours to produce a forecast that covers the next 12 months.
Keith's system is also highly accurate. Since inception, the Geiger Index has achieved a remarkable 92.2% success rate.
Just last year for instance, the Geiger Index correctly forecast the movement of the S&P 500 right down to the month. According to last year's forecast:
- The market would take off in the first quarter. (It did. The S&P rose 11% into April).
- The market would dip in the second quarter. (It did. The S&P fell all the way into June).
- The market would level off in the third quarter. (Exactly what happened).
- Finally, it predicted the market would have a dramatic rise in the fourth quarter. (Another check mark. Post-election the market rose 9%, right on schedule).
And as Keith noted in late 2011, "Dips will generally be buying opportunities." Looking back, they certainly were.
So what does Keith's Geiger Index forecast predict for 2013?
I've put together the entire projection in one simple chart along with Keith's key takeaways for the year below.
First, let me explain the chart. Using market data from around the world, it projects the market forward in 2013 using the S&P 500 as a proxy.
What's important is the yellow line. It marks the projected pattern that the Geiger Index "sees" for 2013.
What you notice from the projection is that there will be a gradual run higher into late Q1/Q2. Over this time frame the S&P 500 will likely peak for the year.
After that, the Geiger Index predicts that the markets will soften considerably going into Q3. Knowing these moves in advance will be key.
According to Keith, "the selloff is going to test everybody's patience, but the good news is that it shouldn't last too long."
Beyond Q3, the Geiger sees momentum building into Q4. That potentially includes a sprint into year-end that's similar to what we just experienced at the end of 2012.
Keith's Key Takeaways From the 2013 Forecast
As you might suspect, there are a couple of key takeaways when it comes to your money.
According to Keith:
- There will be more volatility ahead. Most investors will look at that with great trepidation. That's a mistake. When you have a tool like the Geiger at your disposal, it doesn't really matter which direction the markets are moving---just that they're moving. Movement presents opportunity regardless of the direction. Don't forget that the S&P 500 is correlated to everything from oil to gold and even foreign markets. If you understand how the S&P 500 moves, you'll have a pretty good idea how the other related assets will move, too.
- Because there's upside in the air, investors will need to double check their protective stops and sell into strength. Investors will be tempted to hold on for the ride but that's pure greed. Study after study shows that the better and more consistent route to profits is to harvest those gains. Nobody ever went broke taking winners. Plus, doing so helps free up valuable capital that can be recycled into better Q3 and Q4 opportunities.
- There's something else to think about. Just because the market is going to go up... and down... doesn't mean you can't make money. What it means is that you cannot play the "set it and forget it" game of index investing. Portfolio structure and, by implication, investment selection is critical because winning really has become a stock "picker's" game.
- Even though it's months away, investors will want to be sharpening their pencils. Short-term market gyrations will produce lots of opportunity because they put great long-term assets on sale. That's why savvy investors continually look for situations that the rest of the markets have ignored. In case you're wondering, this is not the same thing as being a contrarian. Contrarians, as the old joke goes, are great at picking tops and bottoms; the rest of the time, they're just wrong. What I am talking about is identifying instances where deep value is presented at deep discounts.
We'll be sharing more specific looks at some of the more popular asset classes in the weeks ahead, including gold, oil and even some of the media darlings like Apple, Amazon and Home Depot. So stay tuned.
In the meantime, though, let me leave you with one final thought.
What's critically important is that you take the time to develop a plan that will allow you to easily adjust your tactics to changing market conditions.
Armed with information provided by the Geiger Index, it's easy once you can tune out the noise. Consistent gains are absolutely possible when you understand what's probable.
To learn how you can take direct advantage of the Geiger Index - and join in our 4-year anniversary celebration of the Geiger's astounding track record, starting today, just go here.