Bloomberg News

U.S. Stocks May Rally 30% on DeMark Buy Sign: Technical Analysis

October 03, 2011

Oct. 3 (Bloomberg) -- U.S. stocks may decline over the next two to three weeks before rallying as much as 20 or 30 percent, according to a technical analyst at Market Securities who uses DeMark indicators.

“The odds are pretty positive for this month and quarter,” Jean-Charles Gand, head of technical analysis at Market Securities in Geneva and former president of the French Association of Technical Analysts, wrote in a report today. “The S&P has a chance to rally over the next couple of weeks,” he wrote, adding that there’s a risk of a selloff before the gains.

A buy signal for the Standard & Poor’s 500 Index was triggered last week after 13 trading days on which the gauge closed at a lower level than the intra-day lows two days previously, Gand said, citing indicators developed by Tom DeMark of Market Studies LLC.

“The buy signal will be confirmed with the first close greater than the close four price bars earlier,” Gand said in a phone interview from Geneva. “Today, for example, the S&P would have to close higher than the close on Sept. 27 at 1,175.38.”

The S&P 500 may form a bottom at 1,030 in the next two to three weeks before rallying as much as 20 or 30 percent, Gand said by phone.

The S&P 500 fell 0.1 percent to 1,130.22 at 10:26 a.m. in New York. The benchmark gauge for American equities declined 0.4 percent last week, capping the worst quarterly loss since the end of 2008, as the sovereign-debt crisis in Europe and concern that the global economy is slowing overshadowed improving reports in the U.S.

“This will be a countertrend rally, not a start of a bull market,” Gand said. “While timing and seasonality are encouraging, I’d stay cautious on equities in the long term. We should see another downtrend in the first half of 2012.”

In technical analysis, investors and analysts study price graphs to predict changes in a security, commodity, currency or index.

--Editors: Andrew Rummer, Will Hadfield

To contact the reporter on this story: Corinne Gretler in Zurich atcgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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