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The Ides of March or when this bear market might hit bottom

October 17, 2022

We need to be flexible in our stock market decision making but I have two provisional forecasts for the Nasdaq 100 Technology index, an unweighted index measuring the performance of technology shares quoted on Nasdaq. The first prediction is that the index is in danger of falling below 5,000, which is not far away now. The second is that the Coppock indicator, after becoming heavily negative, will turn higher in the Spring of 2023, probably in March or April.

This last forecast is looking both likely and likely to be important. Coppock peaked at plus 505 in August 2021, turned negative in July 2022 and using projections based on the latest level will reach minus 380 in February 2023. This is a big move, a full scale bear market by any standards so the turn higher (Coppock becoming less negative) will be exciting and is presently set to happen, just, in March 2023. By the summer of 2023 Coppock should be rising strongly.

This puts us in an extraordinary position. There is not an absolute one for one relationship between Coppock turning higher and share prices turning higher but based on the historical evidence the link has been a close one. We thus have an important piece of knowledge about this stock market. This bear market will end and a new bull market will begin in March or maybe April next year.

Now let’s bring in a second thought. Initially the recovery/ new bull market will be built around familiar names from the old bull market but gradually new names and new themes will emerge. We need to be alert for those because investing early in new areas of excitement and new names enables us to benefit from crowd theory. This is the idea that stocks start with a small crowd of investors/ followers and this grows over time as the story becomes more widely known driving the shares higher.

I sometimes think of this as shares having their day in the sun. A classic example is Games Workshop, the maker and distributor of table top games with wonderful paintable figures to give hours of pleasure to young and often not so young enthusiasts all over the world.

In 2015 an unassuming man called Kevin Rountree, who started working at Games Workshop as an assistant accountant, was appointed CEO and embarked on a transformation of the business. Shortly after Rountree took charge the shares were 420p. By late 2020 the price had topped £120, a rise of over 28 times; that was Games Workshop having what I call its day in the sun. It is during this day in the sun period that you want to hold the shares.

Another great example was Nvidia, which, as far as I know, invented the GPU (graphics processing unit). Initially this was big in gaming but has gone on to be a vital part of data centres, autonomous driving, artificial intelligence and goodness knows what else. Video gaming itself has also grown dramatically as an industry. As investors realised what was happening, helped by the company’s charismatic co-founder and CEO, leather jacketed Jensen Huang, the shares took off.

You can see it on the chart. In July 2015 the shares were $5. They peaked at $345 in November 2021, a rise of 69 times. Both these shares were featured early in their rise in Quentinvest and recommended repeatedly on the way up. Nvidia is such an amazing business that I can see these shares climbing to new peaks in a new bull market but at the moment all my indicators are negative and the Coppock indicator has just turned negative.

Games Workshop may also reach new peaks but will need a powerful ‘something new’ to make this happen.

Strategy

In a bear market when shares are falling, bond yields and interest rates are climbing, inflation is raging, economists fear recession ahead, politics is turbulent and a war is raging on the borders of Europe it is hard to imagine a new bull market but it will come. My charts tell me this will start to happen next Spring and when it does new and exciting investment themes will emerge, new share names will emerge to lead the markets higher.

What is exciting and unusual for me is that never before have I been able to put a date on when this is going to happen so far in advance. I could be wrong. This has been known to happen but maybe I am right.

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