1000 points captured on the FTSE - where to next?
In my last report four weeks ago, the Dow stood at 10328 and the FTSE100 at 5196. I said that the overall uptrends were still intact, and that the S&P500 chart had a congestion area which should resolve in the same direction as the price entered, i.e. up, and that the Dow & FTSE would follow as a matter of course. This is precisely what has happened, with our key indices having moved higher to 10609 and 5455.
However, it is worth bearing in mind that FTSE reached 5600 a week ago, and that when it was at 4608 in my August 2009 report, I published a target of 5725 based on the depth of the nine-month head & shoulders pattern. I wrote a few months ago how these patterns had been remarkably accurate on the main indices over the last several years, and here again is another superb example with the pattern handing us a 1,000 point move on the FTSE100. If you've been in the market since May as I have, you'll be pretty pleased with the outcome.
The Dow still has a bit to do to reach its target of 11200. When I published that target, also in the 2 August report, the Dow was at 9171, so we're over 1400 points to the good on that call as well.
As we are close to achieving the targets, particularly on FTSE, it's time to think ahead because we are getting close to the end of the first stage of the bull market. (Further to some of my earlier reports, many people still haven't accepted that we are in a bull market) So what next? The move from the lows in March has been huge, and I think a significant period of consolidation will be needed. The most likely pattern on the chart is a multi-month range - maybe six months - and this will be the juncture between the end of the first stage of the bull market and the start of the second stage. The up/down/up/down nature of such a pattern will produce a fair amount of uncertainty, especially among those who can't even make their minds up when the market has been moving in a straight line for nine months. That range could be around 10% deep, or around 500 points, and if you have been in the market enjoying the ride up, now is the time to start thinking about whether to protect those gains. You also need to consider how you would play the range if that's what transpires - clearly a trading situation compared with the buy-and-hold of the the last several months. Being flexible with tactics is clearly important, but all the tactics in the world won't help if you can't recognise the component stages of a bull market.By the way, I am still sticking with my long-term target for the FTSE of 10,000 by the end of 2012.
There's little change on the £/$ and E/$ charts since last time. The E/$ chart at 1.438 still looks like it wants to go lower due to the Large Contra Move signal mentioned in my previous report. If that happens we should see the £/$ chart, currently 1.627, move lower too.
Gold stood at $1150 last time, and I said some "time out" was needed for that chart in order to consolidate the rapid breakout move through $1000 which took it to over $1200. I'm sticking with my assessment that it will be a few months before we see the overall uptrend resume here, but this is still a chart with a lot of potential upside left in it.
If you would like to take the first step to understanding Point & Figure charts - my primary technique for making my forecasts - then I will be pleased to send you an introduction to the method, free of charge. Just call my office on 0161 428 1069 and ask for a copy, mentioning Stockopedia.
(c) Robert Newgrosh 2010
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
6 comments
In reply to StockHound (post #4)
No course required. FTSE doubled in the years following the Coppock signals of 2003 & 1995, and the All-Share Index (no FTSE100 then) put on a five-fold gain within four years of the 1975 signal. Using a conservative doubling of FTSE from the March 2009 low would take us to 7000, i.e. a new all-time high. From there it's simple: one all-time high leads to another and another because there's no resistance. There would also be a wave of bullish sentiment at a new high. 10,000 would be a natural stopping point. We've seen similar things before on the Dow, so my forecast is simply based on precedent.
It may go up, it may go down but over the long term it will steadily rise.
Anything in between is noise and not predictable. You might get a few calls correct but you won't keep getting it right.
I picked up a copy of the Investors Chronicle that was dated last May and in it one of their journalists wrote a 2 page editorial damning the 30% rally that had happened. He then gave a dozen reasons why the rally couldn't continue, citing historic precedents, fundamental valuations, technical reasons and a bunch of others.
Of course we all know what happened next. I highly recommend everyone keep old copies of financial literature... it always reads as pure comedy, if not tragedy.
Behavioural Finance calls this "The Folly of Forecasting" and there's a good post by James Montier about it here http://behaviouralinvesting.blogspot.com/2007/09/yet-more-evidence-on-folly-of.html
Basically economic 'experts' who are over-trained and over-qualified have complete over confidence in their abilities and accordingly use their judgement over quantitative methods.
What I do know is that if you had to pick one tool over the other... technical analysis alone has a greater probability of success for investing than fundamental analysis alone, but only in the hands of someone sensible. Cheap stocks tend to get cheaper, and no amount of yelling at the market will stop a fundamental analyst from getting the timing completely wrong. On the other hand, a good eye for volume, timing and price trends will have a much better chance of understanding key trading levels and more likely keep you out of trouble.
So to cut a long rambling post short, I sympathise with Robert's perspective over any pure economic forecaster. On the other hand I'd like to see more 'meat' to how he has made his forecast. I'm presuming the 'meat' might require me to take a course though!
In reply to Robert Newgrosh (post #2)
Thanks for that. I will take a closer look at 1972/74 as I haven't really studied it. Given my equity holdings, I certainly hope that this proves to be the case! :-)
In reply to MrT (post #1)
Well, as you know, I base all my forecasts on charts. Looking back at previous Coppock signals and the gains that resulted in the index in the years that followed, I felt 10,000 was in line with these other bull markets, i.e. 2003, 1995 and also taking account of 1975 as there were similarities between the 1972/74 bear market and 2007/08. Remember also that when FTSE eventually overcomes its all-time high at around 6900, there will be nothing to stop it in terms of resistance until the psychological level of 10,000.
Hi Robert, I am certainly impressed by the accuracy of the December forecast but I confess that I am struggling with your long-term target of 10,000 for the FTSE by 2012. Can you help me understand that prediction? To my mind, the mini-bull market that we have experienced to date and which you correctly anticipated is a reflection of the fact that governments have stepped in to essentially underwrite corporate risk, hence the worst fears of many of financial armageddon that seemed so credible back in early 2009 have proven illusory.
But, from an economic perspective, we are still in a huge muddle - the credit markets are shot to pieces, everyone is deleveraging and this process will continue for a long time. The governments can't continue to make up the shortfall in consumer spending by pumping liquidity into the market because of the growing threat of sovereign default.
I appreciate your approach is a technical one - which I certainly value - but that 10,000 prediction by 2012 strikes me as dislocated from the economic reality that the UK faces. FWIW.