Market Report  31 August 2014

In my Interim Report of 18 July I announced I was going into cash with my pension fund. The Dow had touched 17151 the night before, achieving 1390 out of 1439 points that I had set as a target, or 97% of the total. The original forecast was made at 15761 and called for a target of 17200.

 

When I came out, I spoke to a number of delegates and said that I felt the risk of the next 5% move was greater on the downside than the upside. A few days after my Market Report on 3 August, the Dow reached an intra-day low of 16333, which was 818pts or 4.8% down from the high. Another good call.

 

I said in the 3 August report that the Dow was now oversold, and it would need to unwind that condition. At the time it was at 16493 and went lower to that low-point of 16333, then started to move higher back to the 20 day moving average as I had forecast. I estimated it would meet it in the 16750-16800 range, and that was pretty accurate. What I didn’t anticipate was that the rally would continue and take the index virtually back to the high. That was a surprise because normally the 20ma would halt a rally after a fall of that magnitude.

 

Currently the Dow stands at 17098 which is more or less the level I came out at. I’ve now had a chance to look at my pension fund gain since the entry in May 2009 based on the Coppock signal, and it is 93% which naturally I am very pleased with bearing in mind that there was a significant amount in the fund already in 2009.

 

So, what about the market’s prospects from here? For the first time in a long time, I’m not sure. The Dow is around 300pts above its 20ma, so I certainly don’t feel like jumping back in right now, but if we start seeing more all-time highs, it’s going to be difficult not to. So I’ll stay in cash for now and will wait and see, but remember, it was always my intention to re-enter at some point as I said I didn’t believe the bull market was over.

I would prefer that re-entry to be in a couple of months at least when we will be in the Nov-Apr half of the year, but would be prepared to do it sooner if I felt the evidence was strong enough. Here’s the chart, clearly showing that the bull market is still intact:

 

http://stockcharts.com/def/servlet/SC.pnf?chart=$INDU,PMUBDANCBO[P][D20140830][F1!3!100.0!!2!20]&pref=G

 

Four weeks ago the S&P500 was at 1925 and it has risen to 2003 which is an all-time high. The chart continues to be incredibly consistent, with no sign of a major trend change:

 

http://stockcharts.com/def/servlet/SC.pnf?chart=$SPX,PMUBDANCBO[P][D20140830][F1!3!20.0!!2!20]&pref=G

 

As I said last month and on other ocassions, the S&P has been out-performing the Dow for a few years now, so it is not surprising that it gets more overbought than the Dow on the upswings. Currently the S&P has an extension above the 20ma of 2.1% compared with 1.8% for the Dow, and its 7-day RSI stands at 76 compared with the Dow’s 71. These are not extreme figures on the S&P, but something to keep in mind as another move up from here could take the RSI past 80.

 

 

(c) Robert Newgrosh 2014

 

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Aug 31, 2014