by Peter Switzer, Switzer Super Report

With the stock market defying gravity and the legendary market expert, Laszlo Birinyi, tipping the S&P 500 to rise 24% this year, the question is, are there any other reasons to be positive on stocks in 2012?

Next week, I will look at reasons for being negative but given our market has trailed terribly behind US stocks with the S&P 500 up 103% since 9 March 2009 and the Nasdaq up 130%, there is a constant pondering on whether it will ever catch up.

The answer is yes, but it could take some time. That doesn't mean our market indexes can't start showing some real improvement.

The best ingredient for local stocks would be for the Reserve Bank of Australia (RBA) to cut rates two more times and Wall Street to follow Birinyi's script. I know most of us would be happy with half of 24% as a market return and if you add in dividends we could be in market heaven!

You can't expect much help from the Reserve Bank, though I reckon they will cut at least one more time and with China growing a little slower that could bring the Aussie dollar down a tad, which would be one reason to be positive on stocks.

Buy the dips

On the other hand, you can bank on Wall Street and the USA, so here are some reasons why I remain long on stocks and poised to buy on the inevitable dips, which will come along.

So here are my positives for stocks:

  • It's a Presidential election year in the States which is good for share prices.
  • The US recovery is better than expected with retail sales this week the best for five months, despite rising gasoline prices.
  • The VIX, or fear index, is down to 14.8, which screams that investors are becoming less wary of stocks.
  • The US Federal Reserve says it will keep rates down through to 2014.
  • Europe has gone from being a crisis to a chronic issue, but the European Central Bank's trillion loans to European banks have taken away one concern about bank balance sheets.
  • Volumes for shares on S&P 500 are said to be low but on a 10-year average basis they are above average.
  • Also, low volumes on a more recent timeframe has actually been a precursor to rising share prices in the ensuing period.
  • Some see market rallies in four phases: there's the bottom when no one wants stocks, then there is the disbelief stage, then we get to the acceptance phase which is followed by euphoria. I reckon we are still in the disbelief stage but we are getting closer to the acceptance stage.
Working the phases

The disbelief and acceptance phase is the time to make your money and you have to start getting out or reduce your exposure to stocks in the euphoria phase before it ends in tears.

Of course, if money is tight you have to wait for the acceptance period, but if you believe in stocks and you can afford some capital loss while picking up dividends on par with term deposits, then sticking to stocks is an OK game plan for you.

I have one or two clients who didn't want to risk their millions in the despair phase but they have missed out on gains of about 12% in three months as a consequence.

But that's OK because with investing you have to be able to sleep at night!