The Standard & Poor’s 500 Index (SPX) will advance 5 percent to about 1,480 over the next two weeks before the rally ends and stocks fall, according to Tom DeMark, the creator of indicators to show turning points in securities.
The gain would push the benchmark index above the 2012 intraday high of 1,474.51 reached on Sept. 14 before buyers are exhausted, said DeMark, whose prediction last year that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4, 2011. The advance will fizzle, with the S&P 500 heading for a potential decline of 12 percent to 17 percent, he said in an e-mailed statement.
“There is still some unfinished business upside that will totally surprise and shock most market followers,” DeMark, the founder of Market Studies LLC, wrote. The S&P 500 “rally is a solo move in a sense that the overall market trend has been down since Sept. 14,” he wrote.
The S&P 500 surged as much as 15 percent from its June 1 low to the highest level since December 2007 amid unprecedented stimulus from the Federal Reserve to boost the economy. The index has declined 3.9 percent since Sept. 14 on concern corporate earnings will miss analyst estimates. It slipped 0.3 percent to 1,408.75 at 4 p.m. in New York.
DeMark, who has spent more than 40 years developing indicators with names like “sequential” and “countdown,” said the S&P 500 has yet to produce the final top indication to suggest the end of the rally. Other gauges, such as the Nasdaq Composite Index, already formed their tops since September, he wrote.
The failure of the S&P 500 to complete a “top countdown” during this year’s rally together with other indexes mirrored what happened between August and September of 2011, when the benchmark gauge lagged behind other measures in producing a bottom signal, according to DeMark.
“The similarity is eerie,” DeMark wrote. “If the current market is behaving as the market did into the October 2011 low, only in reverse, as we believe it is, then in next seven to 12 trading days S&P 500 will rally above the peak recorded on Sept. 14 and complete its 13 top indications.”
In general, DeMark’s “countdown” study involves comparing a security’s closing price to its highest or lowest levels two days earlier, with cycles of “exhaustion” forming when a pattern continues 13 times. DeMark said his model calls for the S&P 500 to climb to a range of 1,478.33 to 1,485.33 to record a top indication.
DeMark, an adviser to Steven A. Cohen’s SAC Capital Advisors LP, provided consulting to hedge funds including George Soros’s Soros Fund Management LLC and Leon Cooperman’s Omega Advisors Inc. Advisors Inc.
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