I suggested on Wednesday that the market may already have lost much of its bubble, considered in real terms, and here below is my simple attempt at chartism.
Using these parameters, the late 90s and early 00s were well above trend, whereas last year's highs only just peeped above the upper line and the current value is hovering a little above the centre of the hi-lo wedge.
The implications are that the next low, if it comes soon, shouldn't be worse than around 4,500, and by 2010 (when I'm guessing the tide will turn) the bracket would be in the 4,700 - 7,000 bracket, with a midpoint of c. 5,850.
Taking the market at close yesterday and extrapolating to that 5,850 midpoint, would imply a future return (ignoring dividends) over the next 16 months, of c. 2.5% p.a. - not nearly as good as cash, especially in an ISA. On the same assumptions, to achieve an ex-dividend return of 6% p.a. would require entry into the market at c. 5,400.
On this tentative line of reasoning, we should be looking for a re-entry opportunity somewhere in the 4,500 - 5,400 level, say 5,000. Shall we wait for the next shoe to drop?
How bearish are you? Too much so? See the poll in the sidebar.
By the way, I did a similar exercise for the Dow the next day and it suggested to me that the range should be 7,000 - 10,000.
I'm in good company:
Mr Lenhoff [chief strategist at Brewin Dolphin] predicted that the FTSE 100 could settle between 4,500 and 4,600: "In this bearish phase the market has given up more than 50pc of the bull market gain, we are back where we were in early 2004. One of the key retraceable levels is thought to be two-thirds of a bull-market gain, which would be between 4,500 and 4,600. The market looks like it wants to give up the gain."