2010 Off-Kilter Prognostications

12/31/09

To those who might have an interest,

This will probably be my very last stock and mining market prognostication (made before becoming an officer of Stellar Biotechnologies which we expect to become public in January):

Most stock market calls, even those of current "Bears", are for the recent strength to continue well into the first quarter or half of 2010.

My somewhat off-kilter (even I was surprised when I checked the evidence this morning) call for these markets is really out of the consensus range, so I thought it was worth sharing:

On the general U.S. stock market as represented by the DIA, QQQQ and SPY:

Most often, (this past year was a terrific exception) "Sell in May and go away" is good advice. Not in 2010, I think.

I'm looking for the market to start an almost immediate and significant (8-18%) decline after January 3rd. I believe any rally above the 2009 highs in the first half of the year will be limited to 2 1/2 to 7 1/2% above the highs and to be completed (if a rally continues at all) before March 1, 2010.

My note to self - tax issues aside, tighten stops dramatically on all longs, and go short on the first sign of any reversal.

On mining shares (and gold and silver - GLD and SLV) as represented by GDX and GDXJ:

Most often, "the seasonal" in these dictate a top in the February to May timeframe. Not for 2010, in my opinion.

It appears that the early December 2009 top is that important top for 2010 and the decline and large liquidation has already begun. The heavy public participation in these markets may not see its all-time high for a year or two or three or more, but the current level seems the equal to the 1980-1981, 1988-1990 and 1996-1998 periods, and mining share markets following those were no picnic. Except for mining stock private placements and tax considerations, I would dramatically tighten stops and sell any good rallies over the next 2- 6 weeks.

Note to self - Wait for the summer seasonal bottom (not surprisingly, I expect it to be earlier than usual in 2010) to re-load on the buy-side. "All bets are are off" and I would reverse and "go long" on breaks above the December highs.

What does it all mean? Look for continued, surprising strength in the U.S. dollar for at least a few more months. Look for long-term capital gains "capture" selling to dominate stocks, metals and mining for a few months. (Coincidentally, I concur with the "double-dip" recession scenario, and am convinced that the deflationary period we've been in will continue for a few more months, at least, before the "piper is paid".)

Longer term for the general market: I'm in the long-term, "trading-range" camp (see years 1968-1982). I believe the general stock market bottom in 2009 is extremely important and, despite my bearishness for the first half of the year, I do not expect to see it approached or violated in 2010. Mid-year 2010 should present an excellent buying opportunity for another 4 month to 10 month rally especially for small-cap, biotech and technology stocks.

Longer term for the mining shares and precious metals themselves: I'm in the long-term inflation camp (somewhere between U.S. 1976-1981 and Weimar Republic 1921-1923 . . . sigh . . .). I believe the 2010 lows (probably in the May to August period) will be the last great buying opportunity for the next 2-7 years.

Best,

Darrell Brookstein
darrell@nanotechnology.com