A Fool's Rally Or a New Bull Market?

[Kenny Gibb]

For trading UK shares the FTSE 250 index offers a better reflection of
the UK economy than does the more internationally based FTSE 100.
The 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 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, or not!
The danger of jumping on board the 'buy' train now is early losses
from a price retracement. It could pay handsomely to wait until the
next retracement in prices has developed.
Many 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 DJIA, the S&P 500 , the Nasdaq 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 market indices are due to show retracements shortly.
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 but the others are still
some way off.
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).

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