Guesstimating the Markets {Part III-2009 Redux}

Today is the second scenario I'll offer up on what I think could happen during the rest of 2012.  I'll offer this with the same caveats I discussed last week: 

1. These scenarios are based on what we know today. An unexpected event could throw this whole exercise down the drain.

2. Markets will become slaves to the election in November the closer we get to that event.

3. Do not go trade or invest based on what you see here! Remember the consigliere's maxim, "markets will do what they have to do to prove the most amount of people wrong"!

4. Treat these scenarios as generalities. I have no way of knowing whether the end points will play out the way I am envisioning here and offer these up as a start point for more specific analysis. As an example just because in the chart above we show stocks topping out in May or June does not mean even if we are right on direction we'll get it correct on time.

Scenario #2 {Please note chart change to a weekly view for scale and also note that this chart above is not drawn to scale.}

Markets have several opportunities to break during the rest of the year.  Each time this looks like it will occur, buyers step in and take the markets in a series of stair-step moves to a series of higher highs and higher lows.  The reason for this is that the economy continues to expand at a faster rate than analysts are expecting.  In this scenario President Obama is re-elected but still faces a Republican dominated house and a narrow majority by either party in the Senate thus ensuring that most of his economic agenda will not be passed in a 2nd term.  Markets respond favorably to this event as well as higher than expected S&P 500 earnings by year's end.  in this scenario, economic growth is also expected to increase in 2013.  S&P 500 finishes 2012 between 1600-1800.

I assess the probability of these scenario occurring in some general form similar to what I show above as 15-25%.  This is currently likely the least expected market outcome that most investors & market pundits expect to occur in 2012.

*Long ETFs related to the S&P 500 in client and personal accounts.