Market Report 7th June

On 15 May, the UK All-Share Index weekly chart gave a Coppock signal. The following week, the FTSE100 weekly chart also signalled. The week after that, the Dow gave a signal. How significant are these signals? Answer: very. For me, it means a new bull market has begun. To put things in context, the Coppock Indicator - which signals the start of a new bull market - has only produced one false signal on the UK stockmarket in the last 40 years. You can find more details on the indicator in my Inside Guide to Indicators elsewhere on this site. The last signal was six years ago, and a very good rule of thumb is that the longer the interval between chart signals, the more reliable they are. So I don't think we've waited six years just to get a false signal.
 
However, excellent as Coppock is, it's still only an indicator. What I really want to see now is price-based evidence on the Point & Figure chart in the form of a significantly higher low compared with the March lows. If we get this on the Dow, then we will have the makings of a head & shoulder bottom formed over quite a long time, exactly the same as at the market bottom of 2003. Coppock was also present there. If we see the higher low on the FTSE, we would also have a head & shoulder bottom, albeit one with a double left shoulder which is just as valid.
 
At the time of writing, the Dow is at 8763 and the FTSE at 4438. The Dow has recently completed a congestion area and has moved up out of it which is to be expected as the move into it was up. FTSE is slightly behind, but almost certain to follow upwards. Both markets have resistance ahead, the Dow at around 9000, and FTSE at 4625. Both rallies could be halted here, and if we see a significant retracement from those levels, two things happen. First of all, those levels will then become necklines for potential head & shoulder patterns, and secondly, we are in position for our higher low, which is really just the right-hand shoulder forming. If we were then to break those necklines, that for me would be the decisive action that clinches the bull case. I realise it's thinking several steps ahead, but at least you know what to look for and will understand its significance, and it was exactly the same scenario on the Dow in 2003.
 
I'm quite excited about the prospect for a new bull market. Markets fall faster than they rise, so if a recovery is under way, it will take longer than the time it took the market to go down. The bear market, assuming it's over, lasted just under two years, so a three year bull market is perfectly reasonable.
 
I wouldn't normally use fundamentals for writing this column, but it's reasonable to ask how can we be at the start of a new bull market when the economy still looks so awful? Well, the market looks 6-9 months ahead, so it is suggesting that the economy will start to pick up from early next year, rather than from now. When you look at it like that, it doesn't seem so far-fetched.
 
The Nikkei, currently at 9768 has completed a double bottom over the last eight months, with a low at 7100 and neckline at 9500. I therefore expect to see it go up to 11900 based on the depth of the pattern. In my previous column I noted a double bottom on the Nasdaq100, and this has worked out perfectly.
 
I mentioned in my column on 12 April that the oil chart looked very interesting, and with West Texas then at $54.7, I was looking for a move to $70.
It currently stands at $68.4, so nearly there.
 
Another interesting chart is £/E, currently at 1.15. This has completed a base area over the last six months, and looks set to move higher to 1.25 where it will meet some resistance.
 
There's so much going on now on the charts, and it is certainly the time to learn or brush-up your chart skills. Readers of this column are invited to join me at my free Technical Analysis seminar where I'll be talking about some of the techniques I use to write this column. In particular, you'll get an introduction to the powerful Point & Figure method. Places are strictly limited to just 10, so if you'd like to attend, call me ASAP on 0161 428 1069 and mention Stockopedia.