More bulls than Pamplona

Beware of the bull! It’s a warning sign that, when attached to a farmer’s gate but ignored by hapless townies in floaty crimson cravats, has given rise to hairy moments in TV sitcoms and at least one Carry On film – as well as in a field in Oxfordshire that I mistook for a clever shortcut while on country walk. But it’s also a warning sign that should be attached to some of the investment research I’ve stumbled across in recent days. Because it seems that rampant stock market bulls are everywhere.

Redmayne-Bentley, the Leeds-based stockbroker, this week revealed that “almost four out of five” UK investors “were bullish”, with some predicting the FTSE 100 would breach 5,100 by the end of September. In an almost self-fulfilling prophesy, the FTSE went on to record a 6 per cent gain in the first five days of the survey field work. But when you learn that the field in question was at the Great Yorkshire Show, and the sample comprised visitors and exhibitors, you wonder how many of these bulls went on to win a rosette for “Best of breed”.

Foreign & Colonial then announced that UK strategy director Ted Scott was – rather like a vegetarian in Pamplona – “siding with the bulls”. Dismissing FTSE bears as resentful cowards – “many have not participated in this rally and the scepticism is partly an exercise in self- justification” – he saw an “obvious” red rag in current valuations. “If this is the first leg of a bull market, as I believe, it will continue to rise for some time . . . by the time it is obvious, the market will be a lot higher!” He even thought he was a breed apart: “There are few outright bulls around – that is positive for equities in itself.” Clearly, he hadn’t been to Yorkshire or, for that matter, Norfolk.

Fidelity Funds Network said East Anglia was the region where its Adviser Sentiment Index recorded its most positive July reading. This index has now posted two consecutive quarters of improving sentiment, with advisers predicting business will be back to normal levels within six months.

Investment Management Association figures appeared to confirm this as a UK-wide phenomenon. In the biannual Great British Investor Report, a majority of investors said the UK stock market was “likely to get better” – with the bulls leading the bears by 8 per cent. Ten consecutive days of gains for the FTSE 100 can only have left them scraping the ground in more frenzy.

However, these investors appear to be running into the same problem that got Terry Scott into trouble in Carry On Camping : they don’t actually know what bullish behaviour looks like.

Nor, arguably, do I – as my investing and rambling errors would attest – but I know of a man who does. Robin Griffiths, technical strategist at Cazenove Capital Management, this week posted a much clearer warning sign. “In the world of investment, many people use words like bull or bear market with equal abandon,” he says. “A technical analyst has a precise definition for both terms, so it is possible for others to know what he actually means.”

Others would do well to note his definitions. “Stock market indices fluctuate every day, making daily highs and lows. As soon as a pattern of rising highs and lows appears which, at a minimum takes three days, then it can be called an uptrend,” he explains. “If that pattern persists so that the index breaks above its 200-day moving average [on a chart], then it is a long-term uptrend. If that pattern still continues so that the slope of the 200-day moving average is itself rising, then it is unequivocally clear that it is a bull market.”

So, has a bull market been sighted in the UK? No. According to Griffiths, everywhere in the western world is still in the bear phase of a secular downtrend, with markets about 50 per cent lower than they were in 2000.

But there are bull markets to be found, if you look beyond the UK. “The vast majority of people on the planet now live in areas with new bull markets,” points out Griffiths – in China, India, Brazil and other emerging markets. Some markets were typically up about 400 per cent from the levels of 2000, even at the bottom of the last cyclical bear phase.

But, given the damage a proverbial bull can do by rushing carelessly into China – where “the market can get ahead of events and offer poor value”, he favours India, where the signs are more welcoming.

Griffiths points out that a secular uptrend began with the Sensex index at 2000. In the first cyclical bull swing it went to 21,000. In the following bear phase, it fell back to 8,000. Having recovered to 15,000 after the recent election, momentum suggests it will hit 16,000, before a fall back offers a buying opportunity.

Wouldn’t you prefer to invest in a country where bulls are more likely to be deemed sacred than mad?

matthew.vincent@ft.com