Friday, October 25, 2013


Here is a daily bar chart of one of the leaders of the current bull market, Visa (V). The IPO was in April 2008, not a great time to go public, and shortly afterward Visa hit 89.84 before dropping to a January 2009 low of 41.78. Visa made its bear market low a two full months before the averages. Leaders of a new bull market can often be identified early by relative performance clues like this one.

Since that low V has climbed as high as 203.38 with almost no reactions of significance on the way up. How high will it go? Without nearby historical highs to use as a yardstick the only way I can even venture a guess is to call on Fibonacci.

Adding 233 points to the 41.78 bear market low we get resistance at 275 or so. Three times the 2008 top at 89.84 gives at 270 target. Adding 89 points to the late July 2013 low near 171 gives 260. So the 260-275 zone looks plausible on this basis.

As a rule it is very difficult to identify a bull market top in a market leader like Visa. But there are some technical guidelines which can help identify the top after it has occurred.

First off is the 200 day moving average. You can see that V is well above its rising 200 day moving average, a typical bull market configuration. The most bearish development would be a drop below the 200 day moving average, a flattening out of this moving average, and then a rally back to the moving average. That rally would probably be the last selling opportunity before a big bear market drop develops.

There will be earlier warnings of trouble well before the 200 day moving average rolls over and turns down. On this chart I have drawn green lines at temporary tops on the way up. Once the market has climbed visibly above such a top one can generally rely on the price level of the top to act as support for subsequent reactions. A decisive break of such support levels is a sign of serious technical weakness.

Another yardstick which often proves helpful is the size of reactions on the way up. Visa put in a 24 point reaction in 2010, and reactions of 25 and 20 points in 2013 so far. On this basis I'd say that a drop of 40 points or more from whatever high Visa makes would be a definite sign that the rhythm of the bull market advance has been broken and a more serious decline is underway.

1 comment:

janet said...

Thanks. Do you happen to listen to CNBC? I do and they are saying over and over red flags are here and market correction is coming. They have had about five people in succession today, warning that market correction is around the corner. Makes me pause with contrarian view. Jant