Godfather of Charts Turns Bearish; Targets Dow 12000

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Godfather of Charts Turns Bearish; Targets Dow 12000

By Tomi Kilgore
With the stock market headed for the worst monthly performance in over a year, a well-known technical guru and long-term bull has gotten very bearish.

To Ralph Acampora, known to many chart watchers as the Godfather of technical analysis, the stock market has been exhibiting “suspicious” behavior. That, he says, suggests a new bear market is on the horizon.

As a result, the Dow Jones Industrial Average could slide to 12000 over the next few months – a 19% decline from current levels – before the longer-term, “secular” bull market can resume.

“I’ve been bullish for over four years, so for me making this call, it’s important,” said Mr. Acampora, director of technical research at Altaira, Ltd.

“When the S&P 500 crossed above 1700, I didn’t like the way it did it,” Mr. Acampora said. “When I’m looking at the Dow stocks, they look awfully suspicious to me.”

He said too many stocks were in the midst of, or already pulling back from, “buy spikes,” technicians’ jargon for very sharp gains over a relatively short period of time.

For example, Johnson & JohnsonJNJ -0.52% and 3M Co.MMM +0.03% were little changed from early May through the end of June, then shot up 8.9% and 7.4%, respectively, in July, to end the month with year-to-date gains of 33% and 26%.

Chart-watchers say such spikes after extended rallies represent last-gasp buying that exhausts the bulls. They often lead to rapid pullbacks that retrace the entire “spike” part of the move, chart watchers say.

“The last time I saw a set up like this was in August 1998,” Mr. Acampora said.

From mid-July 1998 through late-August 1998, the Dow fell 19% as worries over an economic crisis brewing in emerging Asian countries and the meltdown in Russian financial markets spread to Wall Street.

More recently, emerging markets have been in relative freefall this year amid worries over a slowdown in China and prospects of reduced liquidity measures by global central banks. The iShares MSCI Emerging Markets exchange traded fund as lost 15% so far this year, while the S&P 500 has gained 15%.

Mr. Acampora thinks that the Dow could fall more now than it did in 1998. He recently lowered his Dow target to 12,000, which would represent a 23% decline from the Aug. 2 all-time closing high of 15658.36. Technicians say a decline of 20% or more defines a bear market.

The Dow has been in a bull market since hitting its financial crisis lows in March 2009. Stocks narrowly averted an official bear market in 2011, when they suffered a 19% decline.

“For me to change my mind, I need to see new highs across the board” in the benchmark indexes, Mr. Acampora said. “And I don’t see that happening.”

He said his bearishness is as much “a prudent investment call” as it is a technical one. Given all the uncertainty surrounding the emerging markets, Middle East tensions, monetary policy and seasonality–September has historically been the weakest month of the year–investors who have made a lot of money since the bull market started should book some profits while they wait for a better opportunity to start buying again, he said.

Through Thursday, the Dow has lost 4.2% in August, the biggest monthly decline so far since May 2012. Meanwhile, the Dow was still up 13% this year, and has more than doubled off its March 2009 bear-market low.

Mr. Acampora adds that the bear market he is anticipating is a “cyclical” one, meaning it’s likely to last just two or three months. Over the much longer term, he’s still as bullish as he’s ever been.

“I’m still a long-term bull. We’re in an environment of a long-term secular bull market, that could last two decades,” Mr. Acampora said. “I’m just worried about the next few months.

“If the Dow does drop to his 12000 target, it could create a “great buying opportunity,” he said. “But I’ll make that call when we get there. There’s no guarantee 12000 will hold.”


I moved my 401k into mostly fixed this June. What say you experts?
"The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function." F. Scott Fitzgerald

"Prediction is very difficult, especially if it's about the future." Niels Bohr


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