Years ending in 8, like 2008, are good stock market years. Only years ending in 5 have been able to beat years ending in 8. For an added boost, the year of an election like 2008 is overwhelmingly an up year. Below is a table of the year-end results for the Dow Industrials for years ending in 8 over the past 100 years.
Another reason 2008 will likely show further gains is that throughout 2006 and 2007 the stock market has been climbing the proverbial ‘Wall of Worry’. The ‘Wall of Worry’ concept was made famous back in the 1970s and 1980s by famed stock market guru Joe Granville. The theory states that ‘bad news’ in an up-trend confirms the up-trend. In other words, when investors are apprehensive in an up-trend, the up-trend is likely more potent. It’s when investors become overconfident that the stock market may be headed into trouble. We’ve seen numerous examples of this phenomenon, the most recent classic example being the Internet bubble of 1999-2000!
How do we benefit from this bullish forecast? Simple. We go long on bullish ETFs, and we have plenty to choose from. For a pure play on the Dow Industrials there is the DIA (Diamonds Trust), which tracks 100 percent of the movement of the underlying index. If you wish to obtain more leverage, there is the DDM (Ultra Dow ProShares) that provides 200 percent leverage on a daily basis for the underlying index. Other indexes include the S&P 500 long via the SPY or the SSO (Ultra S&P 500 ProShares) that provides 200 percent leverage on a daily basis just like the DDM. Other long ETFs include: QQQQ and QLD for the Nasdaq 100, MDY and MVV for the S&P 400 Midcap and IWM and UWM for the Russell 2000.
Balancing a portfolio with a combination of the above should provide broad participation for anticipated price gains in 2008.
Mark Leibovit, CIMA, AIF, is the chief market strategist for VRTrader.com, an Internet-based financial newsletter. Timer Digest has named him the No. 1 U.S. market Timer in 2006 and 2007.