Is now the right time to be buying UK shares? The current rally in the FTSE 250 has been quite strong coming, as it has, after a ‘basing’ period where the index moved sideways for several months. Having now broken above the level of the highs made during that basing phase and moved above its moving average the FTSE 250 is now in a clear ‘Stage 1′ Accumulation trend and, as such, allows us to activate selected ‘buy’ signals on individual shares.
However, it would be foolhardy to chase this price rally and to buy stocks just now. The rally enters its 10th week this week. It has lasted longer than any previous rally since mid 2007 and so it has to be reckoned that a check, a confirmatory retracement, is now due. Much better then to wait and target our buying once the extent of this expected reversal can be seen. This should provide solid confirmation that a new ‘bull’ market is just round the corner.
Here is a chart which highlights the danger of jumping on board the ‘buy’ train now and how it could pay handsomely to wait until the next retracement in prices has developed -
Please click on chart to enlarge.
Some weeks ago we expressed dubiety that the FTSE 250 was in process of showing the way for the rest of the World’s major indices to follow. Well, “oh we of little faith”, it is now looking as though we were wrong as that is what appears to be happening exactly. The FTSE 100, the Dow, the S&P 500 etc are all now suggesting that they are swinging out of their down trends and into Accumulation (prior perhaps to moving into Uptrend).
But, again, there is a great need for caution for a while longer as all these indices are due to show retracements shortly.
Click on the chart to enlarge.
We should also not forget that the other, historically correct, indicators of a trend change – namely, the cross over of the 13 and 34 week exponential moving averages has not yet happened on any of these markets. Yes, that for the FTSE 250 is close (chart below) but the others are still some way off.
Click on chart to enlarge.
All in all it boils down to the need to continue to display patience. Don’t be afraid that the market and share prices are going to run away from you. They might but they will then come back down. So it is better to wait and watch. The current market rallies could be based more on hope than substance (and ‘hope’ is the foremost emotion displayed during a ‘bear’ market).
The extent of the coming retracement in share prices will be a valuable indicator as to the liklihood and timing of the next ‘bull’ market so it is a case that patience now will produce dividends (i.e good capital growth profits) later.
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