2011 BigTrends Market Outlook

2011 Market Outlook

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1-800-244-8736

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Thank You
Thank you for downloading the 2011 BigTrends Market Outlook. In the next
33 pages you will find our analysis of the world financial market and how it
will impact your investments throughout 2011.

In keeping with the tradition of our annual market outlooks we will review
historical patterns of significance, interest rates, international trends, as
well as a detailed look into the world of volatility.

I invite you to review our specific stock and ETF
recommendations that we believe are poised for
growth in 2011.

While this report will yield valuable long-term
information we believe that active management of
your capital is paramount to passive management
so we would like to offer you 30 days of ANY
BigTrends recommendation service for $30!

BigTrends 2011 Market Outlook | www.BigTrends.com

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Table of Contents
2011 Market Outlook……………………………………………………….4
by Price Headley

2011 BigTrends Outlook for Option Volatility and the Markets………..7
by Moby Waller

2011 BigTrends Fed and Economic Outlook……………………………15
by Bob Lang

2011 BigTrends Top Stock Picks and Market Overview……………….20
by Scott Downing

2011 BigTrends International & ETF Outlook…………………………...26
by Andrew Hart


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2011 BigTrends
Market Outlook
By Price Headley

Looking Forward to Market
Action in 2011

As the market finishes off a relatively impressive 2010, where the stock
market shook off a barrage of bad news to see the major market averages
all finish up over 10%.

The most encouraging aspect of the relative index performance is that the
leadership to the upside was led by the Russell 2000 (RUT) and then the
Nasdaq 100 (QQQQ), compared to the S&P 500 (SPX) and Dow
Industrials (INDU). That tells us that the fund managers are still playing
“offense” as they prefer to buy the more aggressive smaller-cap RUT and
tech-heavy Nasdaq names, which means money is still flowing into stocks.

And with a reported $1.9 trillion in cash on the
sidelines, there‟s no reason to think that can‟t
continue.

As you‟ll see later in this report, the 3rd year of the
presidential election cycle is known to be the most
bullish of the 4 years, with historical gains in the Dow
Industrials of more than 10% since 1950. But as we
break it down for you even further, the quarterly gains
suggest the first half offers the best 2 quarters in the
entire four-year cycle.


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The chart outlook shows that the Nasdaq‟s move to a multi-year high gives
us more upside potential, as once the Q‟s cross 55, potential exists to 70
on the long-term charts.

The S&P has retaken the critical 1200 level with potential to 1400, an
encouraging sign. The Dow is running into multi-year resistance around the
11,700 mark, though if we can get through that area, the upside potential
appears to be to 12,500 at least and 13,000 next.

Dow Jones Industrials (INDU) Weekly Chart

If there are concerns, I have two major ones. First, expectations for a
positive year for stocks are relatively high, meaning the bar is raised and
the potential for negative surprises exists. One recent “bell-ringer” was the
cover of USA Today, where all 5 market strategies projected gains of 10%
or more for 2011. This smacks of too much optimism, as usually there will
be at least one dissenter in the mix. Ultimately, the stock market is all about
expectations, and they are too high currently.


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One of the best times of the year to gauge these expectations is during
quarterly earnings season, as if you see strong reports (better than
expectations) but stocks tend to fall, that would be a sign a correction is
coming. But for now, the reaction to recent quarterly earnings has been
relatively positive, with the last quarter seeing some 78% of companies
meet or beat expectations and stocks had a superlative quarterly advance.

My other main concern is Federal Reserve policies. The second round of
“quantitative easing” or QE2 that was announced officially on November 3rd
as a $600 billion infusion into the Treasury Bond market over the next 9
months did not have the desired effect, as bond prices tanked and rates
rose on fears that the Fed‟s printing presses were getting cranked up to
spark future inflation.

I‟ve agreed for quite a number of years that the real inflation rate is a lot
more than the government-reported CPI and PPI numbers, which has kept
me bullish on gold and the metals, which should do well again in 2011 but
also now suffer from high expectations (like the stack of gold coins on the
2001 Forecast issue of Fortune magazine recently – magazine covers tend
to be good contrary indicators looking back 1 year later, so don‟t be
surprised to see a selloff in metals be potentially violent when it finally kicks
in, likely in the 2nd half of 2011).


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2011 Outlook for
Option Volatility
and the Markets
By Moby Waller

Fibonacci Retracement Has
Guided the Way
As they say, “those who forget the past are doomed to repeat it”. With this
in mind, let‟s take a look at what we told our BigTrends.com clients back in
late-2009 in our 2010 Market Outlook regarding the long-term Fibonacci
retracement charts of the S&P 500 Index (SPX) (SPY) and the CBOE
Volatility Index (VIX).

The results are impressive, to say the least:

We‟ve been on top of the big picture market retracement rally that‟s been in
place from 2007 stock market highs to the 2009 panic lows. On the SPX
Weekly Chart below, a Fibonacci retracement was pasted on these key
levels, and it gave us clear targets for 2010 in terms of the longer-term
ranges. The volatile price action we‟ve seen over the past few years gains
clarity and has been very accurate when you examine it with these
methods.

The bottom line is the bottom line, and we anticipated a range on the SPX
of 1,014 to 1,228 based on the Fibonacci retracement patterns – the actual
range of the SPX this year has been 1,010 to 1,250!


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So what does this long-term Fibonacci chart tell us is in store for 2011?

Well, you can see below that we‟ve had 2 weekly closes above the key
61.8% retracement level of SPX 1,228 this month. This looks to be a clear
confirmed upside breakout of a range that had contained the market for
about 1.5 years. You can see that we had remained nicely within the
38.2% to 618% retracement range (yellow trendlines) from mid-2009 to the
end of 2010. Now the market is poised for a higher move.

How high will we go? Well, the next logical target is the 76.4% retracement
level of 1,361 on the SPX (aqua trendline). That‟s about 9.1% higher than
where we are currently. How long will it take us to reach that level? In my
analysis, 6 months at the most, see the next passage for more detail on
this. Overall, the anticipated SPX range for 2011 from this chart is 1,100 to


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1,400 – with a possible outlier upside run to test 1,500 and the highs of
2007.

Historical Calendar Election Trends Are on the
Market‟s Side
Combined with the above Fibonacci breakout, we also have a strong
historical calendar trend in place that makes the first 6 months of 2011
poised for gains. This is the 3rd year of a mid-term election cycle, and the
data shows that the first 2 quarters of the 3rd year are historically very
strong for the stock market. See the table below:


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This data from the past 60 years shows that the 4th quarter of a mid-term
election cycle what we are currently in Oct to Dec 2010 has a very bullish
bias for stocks. However, what many investors and traders don‟t realize is
that this follows through for the next 2 quarters of the next year! This
historical data has been accurate thus far for 2010‟s 4th quarter, as we‟ve
seen a strong market – so that is even more reason to anticipate that it will
hold true for the next six months. Beyond the first half of 2011, I‟m not as
positive on the markets in the second half of the year – I wouldn‟t be
surprised to see us have some volatile moves in a sideways type trading
range.

Volatility Will Head Lower, But How Much?

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Now on to the VIX, market volatility and option volatility. We‟ve been
tracking and trading options for over 20 years and have been utilizing the
CBOE Volatility Index (VIX) since its inception in the 1990s. This is a great
measure of the sentiment and fear level of option traders, as it basically
shows exactly what volatility expectation they have for the market in the
current environment. We‟ve seen some unprecedented volatility in the
markets since 2007 in both directions. What did we say last year at this
time about the VIX outlook for 2010? Take a look at the chart below:

And what did the VIX do in 2010? Take a look below. We anticipated a
lower range on the VIX of 15 to 30 in 2010 – and it basically moved within
that range for the whole year, barring a couple of spikes higher (which is
expected from unusual news events, even in a bullish market). And the low

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on the year for the VIX has been 15.23 … basically exactly where we said
the bottom would be.

And now we move into 2011, what lies in store for this measure of index
option volatility? In my view, and this combines nicely with the forecast of a
bullish 6 months ahead, we‟re likely to see a lower VIX range throughout
2011. The important low should be 12.5, although we potentially could test
the 10 level. On the upside we largely will be contained by the 25 level,
although there always is the possibility of short-term VIX spikes. The
difference for 2011 is that I anticipate that VIX upward spikes will be milder
and shorter-lasting than in previous years – basically more similar to the
quieter volatility moves we saw in the pre-2007 years. Of course, there are
always can be the unexpected major event that shakes up the world‟s


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markets and jacks up volatility much higher. But bottom line, the 12.5 to 25
area will be the range for the VIX throughout 2011 in my analysis.

Bottom Line And Additional Trading Insights For
2011
So we‟ve mentioned the bullish setup for stocks in the first half of 2011 –
this indicates traders should buy dips in that time and also be prepared to
jump on board and profit from upside accelerations that may not give much
of a pullback. The VIX will have a lower range, but won‟t drop below
12.5/10 – and upward spikes are likely to be shorter-lived and less volatile
than in the past couple of years. Here‟s a couple of other forecasts and


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insights I wanted to pass along to our BigTrends.com clients:

As far as Index ETFs and Index Options, the Russell 2000 (RUT) (IWM)
and Nasdaq 100 (QQQQ) (IWM) outperformed the other broad market
indices this year. This is generally an underlying bullish sign of strength for
the markets when these types of indices outperform, as they are more
growth-oriented and a bit smaller-cap. Should the market upside continue
into 2011 as we expect, then these Indices/ETFs should continue to
outperform.

Regarding the Dow Jones Industrial Average (DJIA) (DIA) – be cautious
depending on your risk level when trading the DIAmonds and its options,
when compared to the S&P 500 Index (SPY) (SPX) for example. The DIA
is comprised of much fewer stocks, and this lack of diversification can
cause more volatile moves (in both directions). To some degree this can
increase risk due to the influence that 1 individual company can have on
the fortunes on the DJIA. Something to keep in mind for your trading in
2011.

On the international front – I like the India market
(PIN) ETF to continue to be strong in 2011. And
from a contrarian perspective, the relative
underperformance of the Brazil (EWZ) and China
(FXI) ETFs leads me to anticipate that they will
outperform in 2011.

Regarding Gold and Commodities – although we‟ve
been bullish on Gold and many Hard Commodities
for some time, the overwhelming bullish sentiment
among many novice investors and the general
public for Gold in particular is raising alarm bells to
us as contrarians. Hence, I anticipate that the long
bullish run that many commodities have been on will
have a pause in 2011.


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And finally, keep an eye on the Financial sector (XLF), which seems to
growing more and more influential in both the U.S. economy and on the
stock market. It‟s always been considered somewhat of a leading group,
and this seems to be becoming more and more so in the current
environment. Strength and strong earnings in financial stocks will bode
well for the markets in 2011.

Have a great and highly profitable New Year!

2011 BigTrends
Fed and Economic
Outlook
By Bob Lang

2010 Rewind
This was one of the most bizarre years that I could remember. Not only did
the equity markets suffer from the anguish of higher volatility and fear, but
also the bond market became the safe haven of investors. This while the
treasury issued bonds at a record pace and the Fed bought them up just as
fast! The call this last act Quantitative Easing (QE), or keeping rates
artificially low in order to stimulate business and hiring. It is not new nor is
it unhealthy but the magnitude of Fed easing is unprecedented. The first
round of QE seemed to be ineffective at best, so in late 2010 Chairman
Bernanke announced another dose of QE, affectionately known as QE2.
Could 3, 4 or 5 be far behind? This latest move by the Fed signaled they
will buy 600 billion worth of bonds in the short term and may increase that
amount. Fed policy remained unchanged the entire year, no increase in
short term rates. Make no mistake, the Fed is on a mission – and that is to
stimulate the economy via easy money to get the jobs market in better


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shape and provide stable pricing. As of this writing the jury is still out on
this self-imposed mandate.

Bond Roller Coaster Ride
In 2009 bonds had a terrible run, yields on the 10 yr bond climbing from a
low level of 2.2% to just over 3.8%. It‟s no wonder stocks enjoyed a nice
ride. Last year fell sharply until mid-year, bond bulls enjoying a nice rally.
Late in year bonds started to take a hit as the reality of Fed easing finally
kicked in, bondholders preferring not to have long duration in their
portfolios. Bonds may eke out a slight gain for the year but will trail
equities, see the chart below. Perhaps the Fed is being taken seriously at
least from the standpoint of fixed income holders. Or, maybe the economy
is actually growing with little inflation. To be sure, Chairman Bernanke
would like to avoid the disaster of the Great Depression, when prices fell so
far that it caused a swirl of deflation that took over a decade to overcome.


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The Fed‟s Challenges
There is an old saying coined by famed investor Marty Zweig in the 1980‟s
– Don‟t Fight the Fed. Those words ring as true today as back then. Fight
the Fed at your own peril. In fact, that was truly the case in 2010 and
should be thought of in 2011. When the Fed is in easing mode, it‟s time to
go along for the ride. Nothing in their current playbook suggests anything
has changed and probably won‟t until the job market normalizes. Chairman
Bernanke is on record as saying the unemployment rate is far too high, and
he‟ll keep monetary policy accommodating until such levels are acceptable.
Their dual mandate – price stability and low inflation – seem to be working.
In 2011, the Fed may face some headwinds of inflation, which may require
easing off the pedal, perhaps a rate hike or two later in the year, see the
following chart. Existing troubles overseas, especially in Europe also could
derail the economic recovery. I suspect the Fed‟s medicine to the economy


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will work this time around, and later in the year we‟ll see robust growth with
firms hiring for the next economic and business cycle.

Wildcards
It is no secret that gold/silver have broken out to new relative highs. There
are many dynamics that have driven higher prices in the precious metals
but the most important is the deteriorating fiat currency, otherwise known
as the US dollar. See the chart below. China, a big supporter and buyer of
US debt and assets has made it public they are displeased with the US
dollar policy. While the jawboning happens there is risk that our biggest
trade partners will stop buying our debt – they have been the biggest
purchasers for several years now. The Euro currency is another excuse to
diversify out of dollars, which is a competitor to the greenback. Back to the
metals, other countries (China, India, Russia) may look at the hard


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currency equivalent as more stable than the buck. Geopolitical issues are
always a consideration, and that often brings some interest in the dollar.

Economy Bottom Line
The jury is out on the economic recovery. Everyone seems to have an
opinion, and most arguments are compelling. However, there is but ONE
captain steering the ship, and the man at the controls is Chairman
Bernanke. He holds all the game pieces and moves them around
whenever he wants them – Fight the Fed at your own risk. I suspect the
economy can continue its healthy recovery in 2011 and beyond, putting the
nightmare of recent years in the distance.

2011 Stock Picks


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I had an excellent trading year in 2010 for our BigTrends clients, as this
was a great stock picker‟s year. For 2011, here are a couple of longer-term
bullish plays for you:

Oracle (ORCL)
Citigroup (C)
Potash (POT)

2011 BigTrends Top
Stock Picks and
Market Overview
By Scott Downing

Keep an Eye on Valuations
and the Economy
2010 has been a year of varying emotions as investors have been put to
the test from start to finish. There are still many concerns about the global
economy and where the next major issue will arise (Europe is still the
leader), but the potential for economic prosperity in the future continues to
grow. So what can we expect from the stock market in 2011?

As we do at the end of every calendar year, we need to take a step back to
review the past before we can accurately predict the future. 2010 brought
upon the „flash crash‟ in May as investors saw the Dow fall 992 points intra-
day, and this event scared retail investors so badly that some might not
return to the market for another couple of years. Despite that panic selling,
reasonably strong corporate earnings and continued improvement in
economic data slowly helped the market to recover those losses plus some
more.


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Even though we are not known for fundamental analysis at BigTrends,
there is a significant fundamental number that needs to be in the spotlight:
the S&P 500 P/E Ratio. The S&P 500 closed out 2009 with a P/E ratio
around 20, which was right around the median for a healthy market
historically.

We have now seen valuations rise back to near 23 which teeters on the
edge of an extreme. For this reason, markets are likely to stay rather
volatile into 2011 as investors struggle to buy stocks given the high
valuations. I expect the market to close out 2011 flat to lower as finding
trends to trade becomes more challenging with most stocks having high
multiples again.

The two key buzzwords that are likely to dominate the headlines in 2011
are jobs and rates because the health of the economy is likely to be
gauged by those two metrics. Unemployment in the US remains
historically high and will eventually have to come down if the economy is
going to grow through the recession. The market is likely to over-react
initially to jobs data both positive and negative. Consistent job growth
coupled with a slowly declining unemployment rate is what is needed to
extend the recent rally.


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Then there are rates, as every trader will be focused on the Fed and their
actions, specifically in the first half of 2011. Many believe that we are
already starting to see the signs of inflation take root in the United States,
while others contend that the economy is so weak that interest rates must
remain at zero to promote a culture of financial growth. It seems plausible
that the most likely scenario for interest rates would be a period of
stagflation for the US if problems in Europe and Asia continue to pressure
the global economy further.

With all of this said, there are still going to be some great trading
opportunities for those who are knowledgeable in 2011. Next year could be
a true stock-picker‟s dream as sector rotation will be critical. There will be
trade-able trends that develop, but they will not be as broad based as we
have seen the last two years, so being able to find and trade specific out-
performing stocks will be paramount to success in 2011. IT and Health
Care are poised for big gains next year, so two of my three favorite stocks
for 2010 come from those sectors. My third pick is a sturdy industrial that
should benefit from any growth globally.

3 Top Stock Picks for 2011:


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Danaher Corp (DHR)


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Fiserv (FISV)


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Varian Medical Systems (VAR)


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2011 BigTrends
International & ETF
Outlook
By Andrew Hart

Success Breeds Success –
A Look Back At 2010 ETF
Picks
With my focus on short-term trading it can be quite the daunting task to
predict an entire year‟s worth of market action. Despite this being outside
my forte I do thoroughly enjoy writing down ideas and researching longer-
term charts to gain a better perspective. I enjoy it because it works. In
fact, my previous outlooks have been surprisingly successful and have
outperformed the market each year. We will look at these selections later.
This will be my third year disclosing my own 12 month outlook so let‟s get
started. In this year‟s statement I will focus on Exchange Traded Funds
(ETFs) and international opportunities and believe it or not 2010 was an
odd year for those well-known emerging markets.

Against all odds US equities actually outperformed many emerging markets
in 2010. It is a surprise to many that Chinese and Brazilian equities
actually underperformed the S&P -- a quick check on the associated ETFs
show that the S&P500 (SPY) has never outperformed Brazil (EWZ) and
China (FXI) in a bullish year. I looked back to the inception of EWZ and
FXI - 2000 and 2004, respectively. That being said, should you invest in
any emerging markets this year? For that matter should you risk your
capital in the Euro zone? Whether the BRIC (Brazil Russia India China)
superstars or the developed economies in Europe there are defined
locations that you should avoid and others that are showing a lot of promise
for 2011.


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In the last two years I‟ve recommended 6 ETFs that I believed would
outperform the market in those respective years. This year I will
recommend my top three. In reviewing my 2009 selections, 3 out of 4
outperformed the NASDAQ 100, which was the leading index in 2009 up
43%. In 2010 we recommended two ETFs and both outperformed the
market. Here‟s a quick synopsis of my top ETFs for previous years:

Andrew‟s 2009 International & Sector ETF
Recommendations
Name Ticker 1 Year
Performance

Progressive Energy PUW 50.89%
Portfolio

Steel Index SLX 79.54%

Telecom & Wireless PTE 16.55%

Latin American 40 ILF 69.92%

Andrew‟s 2010 International & Sector ETF
Recommendations
Name Ticker 1 Year
Performance

Small Cap Brazil BRF 18.19%


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Middle East & Africa GAF 22.37%

The Top 2011 International Opportunities:
As you can see, we have been fortunate enough to significantly outperform
the market with our selections in recent years and plan to continue our
streak with this year‟s international highlights. The selection process is
based on technical analysis and primarily trend based (not value or
reversals) so it should not be surprise that China or Brazil will not be in the
running since they underperformed in 2010. Note that I still like Brazil
Small Caps (BRF) into 2016, which is discussed in detail here.

In my preliminary research for choosing my favorite three for 2011 I came
across a core theme that I had not recognized. The major emerging
market „brands‟ like the BRICs were not performing well. This made the
selection process more daunting - it was my general assertion that certain
sectors within these emerging giants would be strong. This was simply not
true.

Based on my analysis I found seven international leaders for the next 12
months and it was hard to initially concentrate that list down to three. The
full list of the strongest areas is below:

Name Ticker Price 52 Week 52 Week
High Low

Thailand Index THD 63.05 68.70 37.65

Chile Index ECH 79.85 80.38 27.27

Singapore Index EWS 13.41 14.56 10.37


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Indonesia Index IDX 83.80 92.75 21.53

Turkey Index TUR 63.16 79.00 44.40

Malaysia Index EWM 13.93 14.41 10.18

Emerging Mkt EMB 106.36 114.14 97.08
Bond

In order to select the best-of-the-best international ETFs I began with this
list and started pairing it down based primarily on the criteria below. You
will notice that I did not use many fundamental factors (if any) into my
consideration. For those of you that would like to see those statistics I
have included an additional chart for your reference.

Core Factors
● Monthly/Weekly Trend Strength
○ William‟s %R
○ Bollinger Bands
○ Acceleration Bands
● Average Daily Volume
● Expense Ratio
● Diversification of holdings


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Comparison Sheet

Overall, I am very encouraged by the final selections - after carefully sifting
through hundreds of ETFs here are my top three international ETFs for
2011.

BigTrends Top 3 International ETFs for 2011:


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iShares MSCI Chile (ECH)

Most of us think of the miners‟ survival story that made headlines when we
think of Chile, but they can do a lot more than mine. EWM is incredibly well
diversified, which shows the breadth and depth of the Chilean economy.
As one of the strongest leaders in recent months I believe this will continue
to lead over the next several months. It won‟t be without volatility but the
fundamental base of strength is evident for market outperformance.


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iShares MSCI Turkey (TUR)

Surprisingly, the Turkey ETF is heavily weighted in Financials - something
you would typically find in a more developed country. Many emerging
markets are heavily dependent on materials and agriculture for growth so
this is one of the bright spots for TUR. Of course, the second largest
holding is materials so the expected growth in that sector will also benefit
this selection. It‟s an ironic twist on fate, but to the bureaucratic mess
associated with Turkey‟s future inclusion to the European Union may well
make it a stronger country for investment purposes. Without being directly
hampered by Ireland, Spain, Portugal and others Turkey has set itself
apart.


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iShares MSCI Malaysia (EWM)

The Malaysian ETF is also well diversified, although the largest sector is
financials. I expect many countries in the Pacific Rim to outperform in
2011. Singapore, Vietnam, Indonesia to name a few. In the chart EWM
may look overextended but taking a step back to the 10-year horizon
Malaysia is actually underperforming the S&P500 so if you‟re looking for
shorter-term strength and longer-term value EWM is a balanced selection.

BigTrends Wrap Up
This report should be used as a valuable trading
tool throughout 2011 but we also believe that active
management of your trading is necessary in today‟s
market so we are offering you 30 days of ANY
BigTrends recommendation service for only $30!

Call 1-800-244-8736 to speak with your BigTrends
Trading Consultant for more information.

Trade Well,


2011 BigTrends Market Outlook

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