The two-month rally in U.S. stocks will end as the advance in the Standard & Poor’s 500 Index toward 1,500 depletes buyers, according to Tom DeMark, the creator of indicators to show turning points in securities.
The benchmark index for U.S. equities will climb to an intraday high of 1,492.73 and form a sell signal on a daily Combo indicator, which is designed to identify market tops and bottoms, said DeMark, who has spent more than 40 years developing market-timing indicators. The S&P 500 will then fall at least 5.5 percent, he said.
“This high could occur as early as tomorrow,” DeMark wrote in an e-mail. “1,492.73 is just shy of psychological 1,500 as most traders are predisposed to look at markets in terms of round numbers and will expect 1,500 to be hit. And just to confound them, expect market to trade not quite to 1,500.”
The S&P 500 has rallied 8.8 percent from its November low as the Federal Reserve expanded its bond purchase program to boost the economy and lawmakers passed a bill averting most of the more than $600 billion of spending cuts and tax increases known as the fiscal cliff. The index rose 0.8 percent to 1,472.12 at 4 p.m. New York time Thursday, reaching the highest closing level since December 2007.
An advance to 1,492.73 would push the S&P 500 above a four-year intraday high of 1,474.51 reached Sept. 14 and help the index complete a “13 countdown” on the Combo chart, according to DeMark.
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, an adviser to Steven A. Cohen’s SAC Capital Advisors LP, predicted that the S&P 500’s retreat in 2011 would stop at 1,076. The index bottomed at 1,074.77 on Oct. 4, 2011. His Oct. 24 call for the S&P 500 to make a “solo move” and rally 5 percent to about 1,480 around the presidential elections didn’t come true.
On Dec. 4, he said the Shanghai Composite Index’s decline below 1,960 signaled selling has climaxed. The Chinese equity gauge has jumped 16 percent since.
DeMark provided consulting to hedge funds including George Soros’s Soros Fund Management LLC and Leon Cooperman’s Omega Advisors Inc.
Market Studies makes money by charging traders for access to its indicators. It also sells subscriptions to the indicators on the Bloomberg Professional service for $500 a month. Bloomberg LP, the parent of Bloomberg News, takes a percentage. DeMark has a similar arrangement with Thomson Reuters Corp. DeMark won’t say how many subscribers he has.
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