This is one of my key benchmark charts for QQQ3, the 3x leveraged Nasdaq 100 tracker. It’s consolidating within a downtrend so most likely will break lower, which could be dramatic. As subscribers know I started buying QQQ3 above $200. I am back to losing money but I still expect to win in the end, which may well mean buying another tranche at significantly lower levels.
As subscribers will know I place a lot of faith in my Coppock indicators, especially those I calculate for indices like the Nasdaq 100. Recently I have been making a tentative prediction that the next bull market will begin early next year. Amazingly this has been confirmed by Coppock. I have projected the indicator forward for the rest of this year and the whole of next year.
There is a strong message from these projections. The next bull market will begin in MARCH 2023! So now we have a date. This is a technique I have never tried before but I find it persuasive. I believe there is an excellent chance that Coppock is right and the next bull market will begin next March. I will keep updating the numbers and keep you posted if there is any change to that date.
Meanwhile all my key benchmarks are flashing red. Since June 2021 the pound has been devalued by 20pc against the US$. Back in the day with Harold Wilson’s Labour government there was a major political crisis when he devalued the £ by 15pc against the dollar. This latest move has probably gone unnoticed by most people and it may not have finished yet.
One of the things that has been happening in the world over the past 10 months particularly has been dramatic wealth destruction. Shares prices have been falling especially those of the more forward looking growth shares whose value reacts dramatically to changes in the discount rate. In simplistic terms if interest rates double the present value of future earnings halves.
Bond prices have been falling as yields rise. Same thing here. If required yields double the reciprocal is that bond prices halve. Cryptocurrencies have been falling hard. Bitcoin peaked at around $69,000 and is now bouncing around $20,000. This all adds up to a dramatic loss of wealth. This wealth was providing security for a huge amount of margin debt so as values fall people dealing on margin get margin calls and they have to sell which forces values lower which drives more selling.
This becomes a powerful vicious circle driving values ever lower. It is like a plane which is struggling to pull out of a dive and this is what Coppock measures, the momentum (steepness) of that dive. Eventually all the loose holders, the over-leveraged investors will be out. I headed for the exits a long time ago. Five times leverage makes sure you do that but people with less leverage are harder to dislodge but many of them head for the exits in the end.
Eventually you reach a point where everybody who is going sell has sold and that is the magic moment we are looking to identify by monitoring my Coppock indicators so closely. So what Coppock is telling me is that based on the numbers there is an excellent chance that by next March we will have reached that magic moment when all the sellers have sold and even a modest amount of buying can start stock markets on their long climb back.
Then we will be in a whole new bull game. Instead of a handful of stocks giving buy signals and swimming against the current of a falling stock market those individual buy signals will be numerous and will come against the background of a rising stock market with the current helping to push stocks higher. One of my key indicators of a new bull market is when we are spoiled for choice of shares to buy. This is the time when we can start to make serious money and when I will start to talk more about the techniques we need to use to maximise profits in the next bull market.
Let us take one simple example now. Imagine we have an unequivocal confirmed buy signal by Coppock. In the past this has been a very reliable buy signal for the index and the stock market. QQQ3 not only tracks this index by 3x but because it is rebalanced every day it is effectively surfing the winners, switching funds every day into the best performers. The effect is a share which can blaze higher. This could be an exciting moment, magic indeed!
Let’s look at another example, my long-time favourite, Tesla. As subscribers know I am a serious Elon Musk groupie. The guy is like a mad genius from a Spielberg movie but his inventions are taking the world by storm. In Kensington and even Saffron Walden it sometimes seems as though there are Teslas everywhere and their owners love them just as I am learning to love my electric BMW i3 – what a cool car.
And what a pipeline lies ahead for Tesla – plans for a semi, an unbelievably funky cyber truck and a Roadster hypercar. Plans for a cheaper Model 2 Tesla are reportedly on the back burner but that makes sense when the company is selling every car it makes and you have to wait months to take delivery. And what is really mind-blowing is that this business is starting to throw off tons of cash. Free cash flow generation is expected to rise from $1bn for 2019 to over $19bn for 2024 (see chart below). What is a cashed up Elon Musk going to be doing. I don’t know but it could be an incredible ride. The next full blooded buy signal for these shares could be another magic moment.
I am trying to be more specific with my predictions not because they are necessarily 100pc accurate but because it is such a useful discipline for evaluating what is happening and making winning responses as events unfold.
The time to make money in stock markets is when individual shares in businesses bent on world conquest are giving massive buy signals against the background of a rising stock market.
Coppock is telling us that is going to be happening from next March onwards. We need to make our plans but we also need to make sure we live to fight again when that new bull market begins so for the present the watchword is extreme caution.
I have just done the same forward projections with the Nasdaq Technology index, which monitors the performance of technology shares listed on Nasdaq. This is different to the Nasdaq 100 index, not only because it has different constituents but because it is equal weighted so not so dominated by the technology megacaps. However the message is exactly the same. The next bull market will begin in March 2023.