IN TRADING, as in much of life, there exists a delicate balance between diving headfirst into the future and poring over every historical detail before acting. The former risks ignorance, with your head stuck in the sand, while the latter can result in the repetition of past mistakes and a failure to seize the day. The inimitable wisdom of Mark Twain – a remarkably unsuccessful investor, but one who made good on his debts – is pertinent: “History doesn’t repeat itself, but it does rhyme.” Looking back at 2011 won’t reveal 2012 into perfect focus, but it might expose to some traders some developments they should keep an eye on in the coming year.
WHERE THERE’S SMOKE
Ian O’Sullivan of Spread Co notes: “Two of the best performers in the FTSE 100 this year were two stocks that many people love to hate – the tobacco companies.” He says “cost-cutting measures and continued expansion and growth in emerging markets – where tobacco consumption is increasing, rather than decreasing as in the West – have seen Imperial Tobacco gain 19 per cent and British American Tobacco gain 20.6 per cent in 2011, on pretty strong upward trends.” He thinks the prognosis for 2012 should be no different: “Investors should be looking to buy British American Tobacco on any weakness back towards £25/£26, and Imperial Tobacco on any pull-backs towards £21/£22.”
FIELDS OF GOLD
Gold, explains Will Hedden of IG Markets, may have lost some of its 24-carat shine in the last month, but it is still up comfortably on the year: “Those investors lucky enough to have been involved long term can still be happy with the profits.” He adds: “Many long-term bulls I have spoken to are positioning themselves for further rises, using the recent correction to consolidate and prepare to re-enter at favourable levels.” He says they cite a push to $2,000 per ounce as a result of the European Central Bank becoming a lender of last resort and instigating quantitative easing. O’Sullivan thinks whichever way gold goes, it is going to be volatile and not a ride for the faint-hearted. He notes: “If the support around $1,550-$1,575 gives way, we could go as low as $1,500 or $1,450. On the other hand, he thinks inflation could maintain gold’s appeal as a store of real wealth, seeing it back around $1,700-$1,800.
Angus Campbell of Capital CFDs thinks defensives could be an attractive area for investors in 2012. He says “many of the utility stocks have been increasing their dividends in the last year or so and even managed to eke out a gain on the year, which would be attractive to any investor considering most benchmarks have declined.” He says: “Going into 2012 investors will probably be seeking yield, as capital gains could continue to be hard to come by and many other companies have been gradually increasing their dividends. For the income investors, there should be plenty of attractive stocks out there.” This is relevant for CFD traders, because if long, they also receive dividends like holders of the underlying do.
Brenda Kelly of CMC Markets likes the look of the pharmaceutical sector, even with global growth headwinds. She believes the “baby-boomer scenario will fan the flame of this sector for the next few years as the global population ages and the retiring community look to invest in what is normally deemed a safer, income yielding asset.”
Predictions aside, if you are trading over Christmas and into the new year there is one piece of advice that all experts can agree on. Kelly warns traders to “stick to virgin eggnog – alcohol and the financial markets do not a successful marriage make.”