Sunday Times - Schwatz Indicator

April 29 2001 MONEY




Stock market signal flashes "buy"


Nick Gardner





THE end of the bear market may be in sight and investors should consider buying shares again.

David Schwartz, a stock- market historian, has devised a method for calculating the end of bear markets by studying patterns since the 1930s.

His system, known as the Schwartz Indicator, flashed a buy signal on Friday for the first time since October 1998, soon after the Asian crisis and the collapse of the LTCM hedge fund caused the market to fall 25%. The FTSE All-Share index bottomed on October 5, 1998 and peaked at the end of December 1999, posting a 50% gain.

The system, which Schwartz admits should be regarded as no more than a rough guide, has a remarkably good record. Since 1965, there have been 13 bear markets and the indicator flashed a buy signal at the right time on three occasions.

On another nine it flashed a month or two either side of the market bottom. However, in the bear market of the 1970s, it flashed so early that investors would have lost 9% instead of gaining the 179% upward swing that followed.

Schwartz said: "It is not a precise science. It simply measures how far the market is from its long-term average. If you are only a little late getting back into the market you can miss big surges in share prices.

"All I can say is that the indicator suggests that a bull market is about to start - or has already started."

The signs on this occasion are positive. The FTSE 100 has already rallied from its low of 5,315 on March 22 to close at 5,951 on Friday. Promises of further rate cuts could also underpin a sustained rise.
 
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