The Dreaded ‘Triple Top’ Cometh?

August 12, 2013


There is not a lot of discussion that we are nearing a so-called “triple top” in the UK. Still they are known as important reversal points.

Update from Kerry Balenthiran (market cycles specialist), whether he believes we will be seeing a low in the Autumn.

What is a ‘triple top’?

The website Investopedia.com describes it as follows:

”A pattern used in technical analysis to predict the reversal of a prolonged uptrend. This pattern is identified when the price of an asset creates three peaks at nearly the same price level. The bounce off the resistance near the third peak is a clear indication that buying interest is becoming exhausted. It is used by traders to predict the reversal of the uptrend.”

In the USA, some market experts are clearly worried:

“– A long-term chart of the S&P 500, going back to the start of the dot-com bubbles in the mid-90′s, illustrates what looks like a “triple top,” with highs in 2000, 2007, and 2013. – WSJ.com, “S&P 500′s ‘Triple Top’ Coming Into View”

“– If the S&P 500 and other major U.S. indexes are turned back at today’s critical, even historic, juncture, we could see a significant upcoming decline in the U.S. stock market as history repeats and also rhymes. – MarketWatch, “Is this the biggest triple top ever?”

“– A third top has now formed, and a 60% stock market drop is inevitable – and it could strike at any moment. – MoneyNews, “Market Collapse Predicted By Scientist”

What about the FTSE100 index?

Having breached the 6,800 level earlier in May, the FTSE 100 remains within striking distance of one previous major turning point at 6951 (30 December 2000), while it has already briefly breached the second one at 6751 (18 June 2007). In both cases the market then plummeted ferociously, causing long and agonising bear markets, eliminating wealth and eroding investor confidence.

The London stock market ballooned from 1997 to 2000 and from 2002 to 2007. But both increases were answered with sharp down turns from both the tech bubble burst and the financial crisis. And the latest uptick since March 2009 is even sharper holding the potential for an even steeper drop.

When asked (see below) market cycles specialist Kerry Balenthiran remains of the opinion that we will be seeing a major sell-off later this year.

Having sold all our shareholdings earlier in May, the Dividend Income Investor.com Portfolio remains in cash until the moment that the share prices of those high quality dividend paying companies that we want to own are being sold by Mr Market at than historically undervalued share prices.

What to do next?

For those in capital conservation mode, like us, by now you will have sold and are in cash awaiting the sell-off in order to ‘re-stock’ at substantially lower share prices.

For those investors inclined to take more risk, while agreeing with us about an impending sell-off, they may want to consider benefiting from a possible down turn using spread betting and/or ‘selling options’ strategies, both of which are impossible to do in an ISA account.

It is not too late – crash proof your portfolio

If and when the market crash happens do you know what to do and what and when to buy?

What is currently expensive will eventually get cheap; cheap shares will eventually get expensive, and vice versa. So if you buy now when a dividend paying shares is becoming increasingly expensive, you are more than likely to generate disappointing results in the long run.

The big threat now is that investors are increasingly willing to pay a premium for dividend paying shares. Of course that will change one day, when shares will crash. That is why I am currently rather cash rich in my own Dividend Income Portfolio.

If you are looking for a good source of information on when a high quality dividend paying share is historically undervalued or overvalued, you should consider becoming a subscriber of Dividend Income Investor.com

We focus on high-yielding, reliable dividend payers, and purchase them when they are historically undervalued. Once we believe their dividends have become unsustainable, or when they have become historically overvalued, we sell.

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What next?

{ 2 comments }

sjdotsch August 14, 2013 at 3:04 pm

Hi Kerry

Having breached the 6,800 level earlier in May, the FTSE 100 remains within striking distance of one previous major turning point at 6951 (30 December 2000), while it has already briefly breached the second one at 6751 (18 June 2007). In both cases the market then plummeted ferociously, causing long and agonising bear markets, eliminating wealth and eroding investor confidence.

The London stock market ballooned from 1997 to 2000 and from 2002 to 2007. But both increases were answered with sharp down turns from both the tech bubble burst and the financial crisis. And the latest uptick since March 2009 is even sharper holding the potential for an even steeper drop.

Having cashed out of the market the Dividend Income Investor.com Portfolio awaits the moment that the share prices of those high quality dividend paying companies that we want to own are being sold by Mr Market at than historically undervalued share prices.

Are you still expecting for this to happen during the Autumn?

Best regards

Steven Dotsch – Managing editor – Dividend Income Investor.com

sjdotsch August 14, 2013 at 3:07 pm

Reply from Kerry Balenthiran

Hi Steven,

I think that the recent August FTSE high is a lower high following the May top and that we are headed lower into Sept/October, based on my cycle work. Although we had a higher high with the Dow, my view is unchanged, although it is possible that the low will come slightly later.

Let’s see what happens as we move into September, particularly around the 13th Sept. I don’t see this as the day of the low rather a timeframe to aim for. But price action should be our guide once we have a confirmed correction.

Remember that Fed meeting is 17/18th Sept and German elections on 22 Sept.

Regards,

Kerry

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