DeMark Raises Caution Flags on S&P 500 Rally

Wednesday, 05 Oct 2011 05:26 PM

 

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A 3.8 percent rally Thursday in the Standard & Poor’s 500 Index would create a pattern that may result in a “sharp decline” a day later, according to Tom DeMark, the creator of indicators for identifying turning points in securities.

“Tomorrow is a very important day for us,” DeMark said in an interview Wednesday with Bloomberg television. “We’ve just got to monitor closely tomorrow’s trading, if it’s very strong and if the news on Friday is either positive or negative, we could have sharp decline to undercut yesterday’s low,” DeMark said.

The stock index closed at 1,144.03 Wednesday, and would send a bearish sign if it reached 1,188 Thursday, he said.

“People are not smart off of market bottoms,” DeMark said. “If you do get three up closes off a low, we’ll see a vacuum in the market and that vacuum will accent the decline even more than the upside.”

DeMark, the founder of Market Studies LLC, said on Sept. 22 that the S&P 500 might drop as low as 1,076 before investor panic abated and stocks advanced. The benchmark index for American equities fell as low as 1,074.77 Tuesday and has gained 6.4 percent since.

On Aug. 16, DeMark said European banks were “bottoming” and Societe Generale SA and BNP Paribas SA “look like buys.” Societe Generale has plunged 22 percent and BNP 21 percent since.

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