Acampora Says S&P 500 Will Rally on Psychology Shift: Technical Analysis
U.S. stocks are likely to add to the gains that lifted the Standard & Poor’s 500 Index 6.1 percent through yesterday from a seven-month low on June 7, said Ralph Acampora, whose career as a technical analyst began in 1966.
The magnitude of the market’s decline in May, as the S&P 500 fell 8.2 percent for its biggest drop in 15 months, and the effect on investor sentiment make possible a rally that might extend the advance to as much as 12 percent, Acampora said in a telephone interview yesterday. Technical analysts view pessimism as a sign that stocks may rise, because it indicates investors have capacity to buy shares after avoiding the market.
“The damage in price and the damage in psychology has set us up on a very short-term basis for a good recovery,” Acampora said. “The low that we made a couple of days ago I think is a good one, and I think we could set the stage for a 10-plus percent recovery.”
Gains beyond that will depend on the stocks that lead the advance, Acampora said. Leadership from “aggressive” industries such as technology, and participation in the gains by small- and medium-sized companies will bode well for the market, while a rally led by large companies and defensive stocks such as utilities is likely to stall, he said.
Moves by the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs also would signal that the bull market that began in March 2009 can continue, Acampora said.
“If we don’t get the broadening, the quality leadership, if we don’t get new highs, we set ourselves up for another selloff in September-October,” he said.
Acampora, a New York-based director at Alverita LLC, came out of retirement last year to manage funds sold to European investors by Geneva-based Altaira Wealth Management. His four- decade Wall Street career included stints as director of technical research at Kidder Peabody & Co. and Prudential Securities. Technical analysts make predictions based on price and volume chart patterns.
U.S. stock benchmarks rose to their highest levels of the year in April, extending the rebound from last year’s 12-year low in the S&P 500 to 80 percent. The main benchmark for American equities then tumbled 14 percent amid concern about the widening European debt crisis, the biggest-ever U.S. oil spill in the Gulf of Mexico, financial-services regulation, and indications U.S. economic growth is slowing.
As stock prices fell, investor sentiment deteriorated. A weekly analysis of investment newsletters by Investors Intelligence in New Rochelle, New York, last week found the lowest bullish percentage since Feb. 16 and the highest bearish percentage since July 2009. The American Association of Individual Investors, which polls its members weekly, saw the bullish percentage fall to 30 percent at the end of May from 48 percent in mid-April, and the bearish percentage rise to 51 percent from 30 percent.
“I like the tenor of the market -- everyone’s so bearish now,” Acampora said. “From a very short-term point of view, looking out a month or so, I’d rather be long.”