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Uptrend unbroken

Alright, yes, I'm being sarcastic. I think the strong likelihood is that the equity markets are merely having yet another pullback within their larger bull run. The S&P 500 has had nine retreats of 5 per cent or more since March 2009, all of which gave way to a renewal of the uptrend. It isn't just normal for this to happen, but also necessary and wholly healthy.

It has been 150 trading days since the S&P last dipped by more than 5 per cent. That’s the longest such run during the present bull market. Naturally, the gloomsters are trying to cast this as yet another mark of today's speculative excess. It isn't, though. There have been plenty of much longer spells in the past. The market went 238 days without such a correction in early 2003-04 and 409 days in 1995-96.


S&P's sell-signal

The sell-off so far has done little technical damage. True, the S&P 500 has gone into a downtrend on its swing-chart. This says nothing about the bigger-picture outlook, though. It merely highlights an opportunity for shorting for the time being. The FTSE 100, meanwhile, has gone back to its 200-day moving average, the fifth time it has done so since late 2012. All of those occasions were good buying opportunities.


FTSE pullback

Of course, it is possible that we have now gone into a new bear market, as the pessimists would have me believe. I think it is an aggressive assumption, however, given the so-far limited declines. By almost any reasonable definition, the larger trend in stocks is still plainly upwards. I could not even contemplate turning bearish until that changed. I am a trend-follower, not a trend-predictor.

The trend-follower’s job is a straightforward one and the clue is in the name. We identify the trend and then stick with it for as long as possible. Pullbacks within an uptrend are to be treated as potential buying opportunities. What this means is that we are right most of the time but invariably wrong as the trend finally does switch. However, the money made on the way up should more than make up for this. The lot of a top-caller is typically the reverse of this: wrong forever and then briefly right.


Mid-caps bounce

I remain enthusiastic about the outlook for the FTSE 250 in the near term. The mid-cap index has proved a much better bet over time than the FTSE 100. And while expensive in fundamental terms, it has yet to reach the sort of extremes that have ushered in spells of underperformance in the past. The FTSE 250 gave a repeat buy-signal on Tuesday 28 January. I think this looks a great way to play the next leg upwards.


Where to buy Japan

The same is true of Japan’s Nikkei 225. The index has come off hard since the start of the year and has gone into a downtrend on its swing chart. However, it is still well above its rising 200-day moving average. A strong rally back through the 55-day exponential moving average might be a good moment to get long again.