A Painful First If Chartists Are Right

Article excerpt


AT LAST, the stock market bears can start feeling better. If the City's chartists are right, the long-awaited cyclical slump in the market is here. Yes, right now.

Following a blissful near three-year run, investors lost their nerve after the Footsie peaked at 5367 on October 2, the chartists say.

Plenty of leaping and lunging can expected, but in general shares will bump down by 15pc to 20pc, until the latter half of this year. Then you guessed it - the bulls will stampede and we'll be off for another good run.

Simply put, this sums up the views some of the City's chartists, the so-called 'technical analysts'. We have been logging the forecasts of these boffins who try to predict future markets by looking backwards at charts of trends for the past three years.

All round, they have earned their keep. They correctly tipped the start of the bull run in early 1995, the surge in the first half of 1997 and the recent autumn setback.

Their major failing has been excessive caution. Some wrongly forecast a correction in 1996, and each year the market has finished higher than any of them guessed.

Sitting today with the Footsie looking flush with health after a dose of Asian flu, it seems only a killjoy could start muttering darkly. Up 58 points to 5193.5, the Footsie is nearing its earlier peak.

Robin Griffiths of HSBC James

The Footsie (thick line) remains strong, bouncing off the 200-day moving average (dotted line) on each dip. Bull markets rarely exceed three years without a major correction.

Capel shrugs this off as a typical 'dead cat bounce'. He believes the Footsie will sink to about 4200 in the first half of 1998, with possibly another rally interrupting the decline.

There is 'no need to panic', he says.

The economy is in good shape and institutions are awash with cash.

This is just a setback in a longer-term uptrend.

For now, Griffiths says, sit on cash bonds. Plunge into equities when the Footsie is wallowing around 4200 so, in readiness for another strong move up late this year.

He favours stocks which have seen their bearish phase, like Bass, Voda-fone, Reuters and Rentokil. …