Raising the Roof for the Dow: How Much Higher Can We Go?
Retired chartist Ralph Acampora is giving a whole new meaning to the saying climbing the walls.
Mr. Acampora, often referred to as the godfather of technical analysis, has been documenting the rise of the Dow Jones on the side of his barn. When the stock market bellwether rose above 23,000 last week, he was forced to climb onto the roof of the barn to squeeze in the high mark.
Technical analysis, or chart work, is a trading tool used to evaluate stock prices to forecast their future movement. Statistics and data from trading activity, such as price movement and volume are analyzed to help foresee the next leg of prices.
Ralph Acampora, took a circuitous path to Wall Street. After attending St. John’s Seminary, a car accident landed him in a body cast and he had little to do during recuperation. His rehab time was spent devouring financial news, a turn of events that spurred him to jump lanes from the priesthood route to that of stock market analyst.
He was a frequent contributor to CNBC and began his career at Kidder Peabody, a then successful brokerage firm. The 76-year old would keep his charts by hand and had a “war room” dedicated to displaying these charts.
He knew even back then that the charts needed to be laid out in succession to help a trained chartist to recognize the pattern of the market.
When he bought a farm in Minnesota with a 70-foot long, 16-feet high barn, he thought the side of it was the perfect place to memorialize the movement of the Dow over his career.
The chart begins in 1967, the same year that Mr. Acampora began his career on Wall Street. The chart originates at the bottom left corner of the barn. Each month of the Dow is represented by a thick black rectangle. The length of the rectangle spans the high and low point of each month.
From 1967 until the stock market crash in 1988 every 6 inches represents 100 points. After the crash, Mr. Acampora had to shift the scale of the chart.
One hundred point movements aren’t as relevant as they used to be and those 6 inches add up quickly. Think about it, just year to date; the Dow is up 3,500 points. If Mr. Acampora were using his six inches=100 point scale, this year’s rectangle would be 17.5 feet tall!
In the summer of 2016 when he was planning and plotting out the schematics of the mural, he realized it was necessary to use a new post-crash scale.
From 1988 until the present day, the scale used is 12 inches for each 1,000 point movement in the Dow. This new scale shrinks the size of the chart down by one-fifth of the size it would be otherwise.
And yet, the barn is not tall enough to accommodate the runaway bull that has taken the market by storm in 2017. Just last week, the market technician had to use a ladder to clamber up to the roofline of his barn to record last week’s piercing of 23,000.
The mural was designed to illustrate the Dow’s movement until just the end of this year, so Mr. Acampora thought he was plenty conservative to accommodate for any upside in the market.
Certainly, Mr. Acampora isn’t the only one surprised by the resilience and strength of this bull market. Some might argue that marking movements in the Dow is an antiquated practice due to the odd construction of the index.
However, the rest of the market is just as hearty. The S&P 500, which mirrors a much broader slice of the market, is up 15% year to date and the tech-heavy Nasdaq up an astonishing 23%.
As a fundamental analyst, I spend most of my time analyzing the financial statements of public companies and researching industry trends that drive their numbers. I don’t put a lot of emphasis on technical work but must say that the paint on Mr. Acampora’s barn roof is a telling signal.
I’m not calling for any short-term crash but am bulking up my list of bearish plays for when the market starts to get messy. I’ve set up the portfolio at my Profit Catalyst Alert newsletter so that subscribers can benefit from bullish and bearish movements in the market. While having a few bearish bets won’t completely insulate investors from the pain of a market crash it can help buffer the pain if the roof caves in.