Will the stock market crash in 2012? Find out here what we think and what the rationale is behind our opinion. Don’t believe anyone who gives you predictions with certainty. The stock market trends of 2012 will build on those of 2011. 

Our 2011 stock market trend overview showed that the long-term trend direction started to point down in Quarter 1 (Q1) of 2011 for the BRIC countries (Brazil, India and China) and in Quarter 2 (Q2) of 2011 for the US and European markets.

Before we start to look at 2012, see here how we avoided the market crashes of 1987, 1998, 2001 and 2008.

2012 Stock Trends

A long-term down turn in the stock market lasts in most cases between the 1 and 2 years. Since the US and European markets started the downturn in Q2 2011, the long-term trend for these markets most likely will bottom and start to point up somewhere between Quarter 2 (Q2) 2012 and Q2 2013.

Thus, the most likely scenario is that the beginning of 2012 shows a continuation of the down-trend that started in the first half of 2011 and that somewhere after Q1 2012 we see the markets starting to turn up.

Market Crash in 2012

Will the market crash in 2012? Maybe... Markets crash due to panic. Markets do not crash that often. In 1987 there was a market crash. In a matter of days, the market lost unexpectedly a significant part of its value.

In most cases, the markets do not crash in a few days or weeks but lose most value during a downturn that lasts longer than a year like in 2008 and between 2001 and 2003. You can see these long-term downturns as a crash if you just look at the markets once in a year. If you check the long-term trend direction every month, you would not call a long-term decline a crash.

My personal prediction is that we will not see a market crash due to the European Euro situation. Europe is expected to enter a recession and it is a big question how Europe can get its economy growing again. However, that is more likely to cause a longer down-turn than an abrupt market crash. Furthermore, the central bankers have been practicing during 2008. Thus I do not expect that we will see a stock market crash due to the sovereign debt problems.

Black Swans

If we get a market crash in 2012, it is most likely caused by an unexpected event with low probability and huge impact… a black swan.

Since they are unexpected, it will be difficult to list them here. But let’s name one. Different reports tell that Iran will reach before the end of 2012 the point of no return of having nuclear weapons… or they will be stopped in one way or another.

Nobody wishes to see the following, but imagine that in a matter of days, an armed conflict arises between Israel and the US on one hand and Iran on the other hand. And suppose the different states in the Middle East chose different sites and the conflict escalates enormously.

In such a disastrous scenario, oil supplies will be disrupted and oil prices go sky high. The outcome of the conflict is uncertain. Many lives are lost. The costs are enormous. It would not surprise me if in such a situation, stock markets will crash deeply. Let’s just hope that a peaceful solution is found before the end of 2012.

Or…

Of course it is possible that the markets move differently than the scenario that you read at the beginning of this article. Maybe for one reason or another US, European and Asian markets stop moving in similar directions.

Maybe the recession in Europe is not as bad as expected; maybe China finds a way back to 8% to 10% growth; maybe the US economy continues to pick up steam regardless of what happens in Europe and maybe companies find ways to grow profits when sales decline. Maybe the long-term stock market trends start to point up now already in Q1 2012.

At Stock Trend Investing, we normally never predict trends. What we do is analyzing what the long-term direction is at this moment. The long-term trend changes direction on average only once in the few years. Therefore, you know that when you check on a monthly basis what the trend direction actually is, more often than not, this direction will stay the same the coming months.

Since nobody knows for sure what the future will bring, we do the only sensible thing. We just check at the end of every month what the situation is and then we act and react accordingly. Read here more on how to protect your wealth by following the long-term stock market trends. Be ready to capitalize on a potential crash in 2012.