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A long term look at the stock market with 2012 in mind

The S&P 500 has been in a long term wide consolidation
The S&P 500 has been in a long term wide consolidation

The broad market ran up to a multi month high Tuesday morning, and then spent the rest of the day drifting. Although the stock market settled shy of its session high, it still booked its best gain in a week.

Gains in European and Asian markets got credit for bringing a spark to US stocks. Overseas gains came amid word that analysts at Fitch believe France and Germany will maintain their top-notch credit ratings in 2012, and many in Asia are hoping that China will ease monetary policy after leaders commented last week about the difficulty facing the country's economy.

Looking at the markets from a very long term view using a yearly chart of the S&P 500, you can see that the markets have been range bound since the year 2000. This may surprise some and also shows why charts should be consulted. If you have not been a trader, an exceptional stock picker, or just plain lucky you have probably not made money.

Analysing this current chart we can see is still in a development stage and has not started to form the classic pattern of a bullish consolidation. Specifically a tigher range towards the top of this sideways range. Generally moves out of the top of a range that start from the bottom of the range without a consolidation near the top are more likely to come back into the range. In other words break outs have a strong likelihood to fail. Unfortuantely using this classic pattern suggests that it could be several more years before we can expect a meaningful move out of the current range. Also unfortunately that this in mind, if you're not a trader, an exceptional stock picker, or again very very luckly you are not going to make money for this time to come.

Long term success in the market requires personal committment to learn about how the market works. This will not come from following another. Freindly tips, listening to TV gurus, and subscriptions to stock lists like anything else you have succeed at it will come from learning judge it on your own.

80% often pay the 20% who have educated themselves and know better how the stock markets work. The good news to this is that it is not really hard to learn and because many don't it gives you an advantage when you do. If you find it is bad news that you have to spend time learning to be successful then you are probably better of having someone else manage your investments. But at least do the due dilegence and check them out.

Here are several articles that will get you started in thinking about making a trading plan that fits your time, temperment and psyche.

Trade with a plan


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