3 Major Stock Trends for 2012... and How to Profit

Three major trends developing right now will greatly influence equities in 2012. Yet despite an immensely difficult trading environment — compounded by the seemingly never-ending eurozone debacle — several important forces are at play setting up specific investing and trading opportunities for the new year.

Here’s what you’ll need to know to stay on top of your game as the new calendar year approaches:

1. Pharma stocks are set to outperform the market —

When it comes to prescription medications, Plavix, Symbicort and Viagra are three household names that have generated massive revenues during their respective lifetimes. And even though these three medications treat very different ailments, they do all have one important thing in common: Each of these drugs’ patents is set to expire within the next two years.

These aren’t the only big-name drugs that could give way to cheap generics. By 2016, patents are set to expire for many of the best-selling drugs on the market, totaling $255 billion in annual sales, according to EvaluatePharma Ltd., a London research firm. Now numerous generic makers are preparing drug applications for what should be an influx of new, cheaper drugs to the market.

It’s not just the generic drug makers that are looking to post significant gains in Well-positioned pharmaceutical giants are already showing incredible strength. In fact, Eli Lilly & Co. (NYSE: LLY) is posted new 52-week highs this morning, capping off a strong December run.

2. Technology stocks are faltering —

Semiconductors were a strong performer for most of 2011. However, the tide appears to be turning for these tech stocks. The Dow Jones US Semiconductor Index flexed its muscles through November, yet failed to top its October highs. What resulted was a double-top, then lower highs after the post-Thanksgiving rally:

Semiconductors are performing poorly relative to the market at large — and they aren’t the only tech stocks that have hit a wall. Poor earnings this week from Oracle Corp. (NASDAQ: ORCL) and the stock’s subsequent drop highlight how fragile the entire sector has become. It would be wise to avoid tech names for the time being — I do not see these stocks bouncing back anytime soon…

3. A consumer comeback will propel new market leaders —

Under the surface, unemployment statistics are showing strong improvements. New claims for unemployment benefits dropped to the lowest we’ve seen in more than three and a half years last week. If this trend continues (or accelerates), it will be a help to restart a stalled economy. “The drop in firings in the U.S. may be helping boost confidence. The Bloomberg comfort index rose last week to the highest level in five months as all three components — state of the economy, buying climate and personal finances — improved,” according to Bloomberg.

This should also help reinvigorate consumer spending, helping to push top retail stocks to new highs. We’re already seeing stocks like Wal-Mart Stores Inc. (NYSE: WMT) and The Home Depot Inc.

(NYSE: HD) lead the market this month with strong uptrends. There is a strong possibility that these names continue to post new highs in the coming weeks and months.