Jeff  Carter

Many prognosticators come out with top ten stocks you should buy next year. It’s awfully tough to do. I was on CNBC last year and picked two, $ATPG, and $PPC. One is down 58% and one is down 17%. In my defense, I had to pick two real dogs that I thought had a chance to turn around. I think what we learned is that if the market has determined that a company is a dog and the management team doesn’t change, it’s still going to be a dog.

At the end of the year, you look back and with 20/20 hindsight think woulda, coulda, shoulda. As you turn to face 2012, it’s with a tinge of optimism and hope. People always like to think about stocks going up. “What can I buy to beat the market and make money?”, is the question they ask themselves.

When I took a peek at those returns though, I thought, maybe we could make more money shorting than buying? Instead of publishing a list of stocks that we should buy, maybe we should publish some stocks we should short. The Dog List.

The scary thing about shorting is that when the broader market gets good, a rising tide lifts all boats. But what I have noticed about the market this year is that the dogs never keep in step with a rising market. And they always over extend to the downside when the market breaks. It’s tough to pick a beat up stock. There still has to be some money in the stock. A lot of stocks that the market has treated like a red headed stepchild are in the pennies already, and your downside limit is 0.

Conventional wisdom says markets in election years always go up. 2008 broke that convention, and I don’t think 2012 is going to be any better. I think it will be a decent market next year, but not a gangbuster red faced bull. In addition, if Obama starts doing really poorly in polls, his administration will try to enact a lot of executive orders, rules and legislation that will force their big government agenda. That’s not good for business or growth.

Here is our base metric, the S&P. ($SPY, $ES_F) -3.8%
SPDR S&P 500 Stock Chart

SPDR S&P 500 Stock Chart by YCharts


Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.