When will share prices start to move up again?
These are the sort of questions that we are being asked, almost daily.
It is not surprising that people are anxious to see a start to a price recovery and a return to rising stock market values but it is of concern to us that so many are so ready to jump aboard what they perceive as – or want to believe is – the bottom of the market.
The ShareHunter track record of identifying the market trends and turns is second to none and (hopefully) all ShareHunter-Select members are well aware of the current dominant market trend and will not be caught unawares.
Rallies in share prices in a ‘bear’ market are largely driven by over-eager investors piling in, not wishing to miss “the bottom”. They are trying to grab that first bit of growth as prices lift off the most recent low. They do not properly appreciate that, by so doing, they are risking a large part of their capital.
The current ‘bear’ market in the FTSE 350 (for example) is littered with examples of share prices that have fallen heavily then bounced (as the bottom trawlers jump in and buy) only to be followed by another halving, or more, of the reduced share price.
1. = @ 250p the bottom-trawlers are buying after the long fall from the 800p area
2. = @ 400p note the very wide bar coincident with the spike increase in volume. This is the “smart money” selling out to the bottom-trawlers who are now buying even more (after the price rises). The price then falls off!
3. = @ 200p the price has halved in 3 weeks! The bottom trawlers start selling out as the 50% fall starts to hurt. They continue to sell as the price keeps falling – eventually to 50p!!
4. = @ 50p. Just look at the increased volume again; this is the last sigh of the exhausted and demoralised bottom trawlers finally selling out (back to the “smart money”) – an 85% loss from 400p! And then, of course, the price rallies again.
5. = @ 200p again. Where is the price going from here? Up or Down?
The ShareHunter answer is – don’t bother; don’t take the risk by buying now. Wait for the confirmation that the ‘bear’ is dead and the ‘bull’ has taken new life. Yes, you will miss out on that first (admittedly exciting) growth spurt but then you will not have put your hard earned capital at the great risk involved; and there will, in a ‘bull’ market, be plenty more growth to be captured.
Leaving the example of Barclays behind let’s look at the main market indices. How do we know when the trend will have changed so that the risk is less and the opportunity for gain is greater?
Well, as ShareHunter members know, there are 8 trend indicators that we require to all be pointing in the same direction and there is one more – the cross-over of the 13 and 34 week exponential moving averages.
This has been a reliable guide in the past (but should never be viewed in isolation, no matter how good).
Here are the charts for the FTSE 100, the FTSE 250 and the S&P 500 showing this one indicator –
You can quickly see how the crossover of these two MAs has signalled the start of a new trend.
Obviously we now wait for these two to cross again as that event will, when taken with the other 8 indicators, signal the time to start filling the portfolio with selected (‘best performing’) stocks again.
For the opportunity to make money from stock market investing without undue risk you might appreciate the power of the ShareHunter analysis.
With the addition of the ‘12-Stage’ trend analysis applied to each individual share identifying ‘wait’, ‘buy’, ‘hold’ and ’sell’ positions the opportunity to “get” the final bottom and to then start buying equities presents a very exciting prospect.
The ShareHunter Team
21 April 2009
0 Response to “Has the Stock Market Bottomed?”