Japan was hit by a devastating earthquake, endangering nuclear reactors.
The U.S. government debt lost its AAA status according to S & P, but U.S. Treasuries became the best performing assets class of the year.
Europe entered into severe recession due to a liquidity crisis and political uncertainty.
China slowed down, putting downward pressure on commodity prices.
The perception of gold and silver went from the ultimate safe haven status to unwanted non-cash producing assets.
Corporate earnings, margins, and cash continued to expand and reached record levels.
With all the volatility and apocalyptic headlines that characterized 2011, the S & P 500 finished the year unchanged. The market changed its mind often and quickly. Yet all this noise… for nothing.
Or was it?
I divide 2011 into two distinct periods: before May and after May. The first 4 months of the year were a paradise for momentum market approaches. Semiconductor smart phone plays, cloud & social media stocks, consumer discretionary, energy stocks, and gold & silver went wild, offering tremendous opportunities for the disciplined.
From the month of May onward, the market entered into a chopfest. Volatility increased significantly. Mean reversion trades worked much better than chasing breakouts. Momentum stocks were taken out back one by one and shot in the head. High yield defensive issues like utilities, healthcare, and fast food significantly outperformed.
2011 confirmed that there is always a persistent trend somewhere. Capital is in a constant state of flux. You just have to wait for your sweet spot and ride it when you find it. Even in the worst year, the market will offer tremendous opportunities on the long side – without an exception.
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Happy New Year!
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