Richard Coppleson, Director – Institutional Sales and Trading at Bell Potter, has outlined why he is expecting 2017 to be a good one for equity investors. Readers of his highly regarded Coppo Report were presented with a history lesson in market cycles supported by Coppo’s trademark analysis of market data and trends. With the ASX200 having traded largely in a sideways pattern for around 3 years Coppo says the market is set to enter the “Optimism Stage”. Historically, this set up has resulted in a 14 month rally adding +24% to the index. So is it time to turn Bullish? Coppo believes it is, and makes his case in the article below. Is it time to finally turn bullish after 3 years of treading water?? I THINK IT IS ..
A history of market cycles indicates it may be turning.. I'm expecting a good year (finally) for Aussie mkt in 2017
How markets move & where we are now
A rough way of looking at markets is that there are 4 periods, we are in the 3rd right now...
Market crashes: The normal fall from the bull market high is about -24% over 26 mths this time the ASX 200 was -21% over just 6mths
Recovery (or hope): Recovers off its low +50% over 10mths. This time the ASX 200 has recovered +33% over the a longer period of 17 mths
Growth period: Where we see EPS growth but PEs retract. This period can run for 20mths to 3 years and mkt rises +6% to +10% over this time. This is where the ASX 200 is right now. This period started in November 2013 when it hit 5439. With the ASX 200 at present around 5400, it means that the ASX is near unchanged from that level and you could argue has traded sideways now for 3 years (from 5439 then to 5560 today (- just 2.2% above ).
The Optimism Stage: I expect this to begin mid the 4th Qtr 2016, this is what we'd call the bull market stage that (historically) goes for 14 mths & market rallies +24% in this stage...
So after 3 years we may be entering this stage right now ... Given the sideways or growth period went for 3 years – you'd have to guess we'll get at least 2 years out of this run ....
Interest rates have come down & may go sideways until Melb Cup hike in 2017 (but many feel 1 or 2 more cuts are coming) - which will continue to see switching out of yield stocks into cyclicals & banks & if $A comes off – as it should (stinger US$ with rates going up there) – then that will give some stimulation to the Australian economy next year, the US economy could be on the verge of a big uptick on the Trump stimulation polices & if China holds its GDP at 6.7% to 6.5% - it could further fuel a decent bounce in 2017...
So when the market takes off – which I think it has .. we need to be aware that there are thought to be 3 stages of a bull market:
When only a few particularly perceptive people suspect that an expansion might be happening
When most people accept that the expansion is now really happening
When everyone agrees that things are sure to expand with no fears of a fall
Between the first stage and the last, nothing has to have changed in terms of fundamentals. The difference actually lies in the perspective that investors are conveying to their decisions.
So being in at stage 1 is where we all want to get in, but this stage is also the most dangerous, as everyone has concluded that things look bad; and buying now is stupid;.
If you don't want to look like an idiot and find that everyone agrees with you that it's safe to stay out of the market then you feel good.
But if you venture to say the market may be looking cheap & entering a decent upturn stage – you will be ridiculed and made to feel dumb; They will tell you many reasons why the markets are in a dangerous place right now; in the future. If you feel sick then that's a great sign that you are a contrarian and in more cases than not being a contrarian I had seen over the last 30 years feels bad at first, but if you are correct the moves are huge.
My best call was going hard to buy the market in March 2003 and March 2009, I had so many really smart investors tell me 25 reasons why I would be wrong (and I felt sick in the stomach as I really was an idiot for going against what everyone thought at the time).
My worst call was calling the bottom of the market in October 2008 and about 2 weeks before Lehmans collapsed. The ASX 20 was down about -35% and all the indicators I look at for major market bottom were all happening... Well so I thought, when Lehmans went the market fell another -20%, bottoming down -57% (but I doubled up then in March 2009 & went hard again).
Chart of ASX 200 from April 2011 to December 2016 - with the 4 stages Article contributed by Richard Coppleson, Director - Institutional Sales and Trading and author of The Coppo Report: (VIEW LINK)
(20min delay)