Market Report 27 September 2009
When I wrote my last report four weeks ago, the Dow stood at 9544 and the FTSE100 at 4908. I stressed that everything still looked very bullish on the charts, and the two indices have moved up to 9665 and 5082, although a few days ago the Dow was as high as 9917. Inevitably there will be reactions on the way, but the main trend is clearly up and looks healthy. I'm sticking with my targets of 11,150 and 5725 based on the depth of the large head & shoulder patterns, and given that there's little resistance on the way, we could see these targets reached within months.
I've mentioned before about the 6-9 month "inertia window" which is the period after the low in which people change sides. The low was in March, so we have now entered that window, and it will get harder and harder for the bears to hold on to their view as each month passes and the the markets refuses to come down.
Each month, of course, takes us closer to economic recovery as well. I've spoken to many people who can't understand why the market is performing bullishly when the fundamentals still look poor. I have to remind them that markets look ahead - up to nine months - and don't simply reflect the situation now, but what is expected in the future. So if recovery is anticipated, that will be reflected in the market's valuation now, it's called discounting. The problem with waiting for the fundamentals to look good before doing anything is that by the time everything does looks rosy, you'll have missed a very large part of the move. Put simply, charts trump fundamentals with respect to timing.
Remember, I still regard this as the early stage in a multi-year bull market, and my long-term target for the FTSE remains at 10,000.
Away from the stockmarket, the Gold chart looks really interesting as I mentioned last time. Then it stood at $955, and it is now at $991, but it closed as high as $1017 recently, taking it through the key resistance level at $1000. The pullback does not really alter the situation at this stage, but if it continued down to $970 I'd say that would cast doubt on the breakout. As it stands, the reaction does not damage the bigger picture on the Point & Figure chart, and a close back above $1017 would confirm the bullish potential of this chart.
A chart which has not performed as I expected is £/Euro. The small bottom completed a few months ago at 1.15 did initially see the price move higher to 1.19, but short of my target at 1.25. Since then it has dropped back and now stands at 1.09.
The charts of £/$ and E/$, currently at 159.53 & 146.92 respectively, look like the short-term is going to be favourable for the Dollar. The last few days have seen some fairly dynamic price action, especially on the £/$ bar chart, with support in the 1.60-1.62 area having been breached. Both charts look like they will go lower, and it is very likely they will move together because they are highly correlated.
The beauty of good chart reading technique - Bar and Point & Figure - is that you can apply your skills to all the markets, including of course thousands of shares. These skills will last a lifetime, and are themselves an excellent investment.
(c) 2009 Robert Newgrosh
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6 comments
Coppock has only been wrong once in 40 years as a bull market indicator on the UK stockmarket. Edwin Coppock said that it has no application as a short-term indicator and should not be used as such.
A few years ago I was able to catch a 5,600 point move on the Nikkei mainly due to a large (that's the key to reliability) head & shoulders pattern. It paid for a lot of tea leaves.
Thanks - the next report will be in about a week.
The great thing about Coppock is you can test it objectively. In the last 40 years it has only failed once, in 2002. Combine it with a very strong pattern - a nine-month head & shoulder bottom - and you've got very strong evidence for a bull market.
The Coppock is the indicator I trust the most. As soon as I heard it was based on surveys of bereavement cycles I was interested. And checking the track record of Coppock's buy signals made me a believer.
What we do know is that markets trend over the long term. And long term indicators such as Coppock and P&F are certainly best placed to catch them.
Looking forward to reading the further reports.
StockHound, shortly some of my reports from the last few months will be posted on the site and these will explain in more detail how I've arrived at my targets. Briefly, we have had nine-month head & shoulders on FTSE which completed in July with a low at 3525 (on the P&F chart) and a neckline at 4625. That gives a depth of 1100 points. This is added on to the neckline to give 5725. There have been a number of major H&S patterns in recent years on the key indices, and they all reached their targets. Once we reach the target, I agree that we'll need months of consolidation and I think a large range is the most likely development. My long-term target of 10,000 is based on other multi-year bull markets which began with Coppock signals, e.g. 1974, 1995, 2003.
Robert, I've recently read that every time the market has moved 60% in 6 months, it's been flat or down over the next 12. How does this tally with your price targets? How do you create your long term targets?