Market Report 30th August

My last column set out all the reasons why I was very bullish on the UK & US stockmarkets. Nothing has changed since then, indeed the market action has simply served to strengthen my conviction with the FTSE100 having moved up from 4608 to 4908, and the Dow having gone from 9171 to 9544. I'm still sticking with my target of 5725 on the FTSE, calculated from the depth of the nine-month head & shoulders bottom. Using a similar approach on the Dow gives a target of 11,150. Let me stress that these are just initial targets. Both indices will need considerable consolidation at those levels, but after that I believe they will move significantly higher as the bull market continues.
 
I mentioned last time that most people (public & fund managers) still weren't convinced about this being a new bull market. But eventually they will have to switch sides and that usually takes place from 6 to 9 months after the turn. We're just about to enter that window, and it will get interesting as investors realise they are missing out and need to get back in. I call this process "inertia" and it is present at every bull/bear market juncture whereby it takes a certain amount of time (and distance) before investors are willing to let go of their previously held belief about the state of the market. Everyone has seen "panic selling" in the stockmarket at some time or other. The opposite - "panic buying" - is very rare. I remember seeing it in early 1989 when fund managers finally accepted that the crash of 1987 wasn't going to turn into a second leg. They piled in, motivated of course by the threat of missing out while their rivals outperformed them. Something similar could happen soon.
 
In my June column I pointed out that the Nikkei, which then stood at 9768, had completed a double bottom and set a target of 11900. It currently stands at 10534 and has very little resistance in its way, so I still expect it to achieve that target.
 
Of course it's not just the three main markets that are bullish - we've had Coppock signals across the board. That is very reassuring and makes it unlikely that they are false. In fact I listed four observations in my last column that pointed strongly to a bull market. I could have added a fifth - volatility. It has come down considerably, particularly if you look at the size of the reactions on the Point & Figure chart. (In a bear market, the reactions are the rallies, i.e. the columns of x's, in a bull market the reactions are the columns of o's)
 
Away from the stockmarket, a very interesting chart is gold, currently at $955. There is a major resistance level at $1000, and if this breaks we should see a very strong advance. It might not happen for a while, but it is definitely worth keeping an eye on.
 
If you would like to take the first step to understanding Point & Figure charts - my primary technique for managing my pension and writing these columns - 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.