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On the brink of a historic buying opportunity

December 9, 2022

I love it when the charts point in the same direction as common sense. We have just had a fierce bear market. Many exciting shares have seen their prices really hammered. But life goes on and so do most of these businesses. Years from now all this sound and fury about inflation and rising interest rates will seem like just a blip. This means we should be thinking about buying and I am.

The Russell 3000, charted above, is an index of all the shares on Wall Street considered suitable (big enough and liquid enough) for institutional investment. Two things are immediately striking about this chart. First, the index, like the American economy it reflects, is in a powerful long-term uptrend.

Secondly, after a sharp correction, the index appears to be reversing higher. Since way back when, otherwise known as 1989, the Coppock indicator has traded in a range with plenty of long swings up and down. At the moment it is trading in the lower half of the range and is in minus territory so poised to give a valid buy signal. I have not done the calculations but I am sure this will happen early next year like my other indices.

As I have noted before buying opportunities like this don’t come along very often and should be seized.

There is an ETF, code VTHR, which tracks the Russell 3,000. The chart looks identical to the chart of the index above. The biggest holdings and weightings are shown below.

The expense ratio, or what it costs you to hold this fund, is 0.10pc, which is pretty invisible and one of the reasons why ETFs that track broad-based indices make such good investments.

Strategy

A conservative investor could build a whole investment strategy around an ETF like VTHR. Since launch the value of the fund has roughly trebled, having at one stage last year, more than quadrupled. Since 2015 it has doubled. For comparison an ETF which tracks the FTSE 250 index, VMID, is up roughly 20pc since 2015.

There have been three periods since 2012, when it was first possible to do the calculations, that the Coppock indicator for VHTR has been rising. Each of those periods was an excellent time to hold the shares. All we need now is that this holds true again this time. If it does we are close to a historic opportunity to buy shares in this ETF and by extension in US shares generally.

Further reading

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