DeMark Says Stock Rally May Begin in Weeks, Buy Europe Banks

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U.S. stocks may slip to new lows in the next few weeks, setting the stage for a rally of more than 20 percent in the Standard & Poor’s 500 Index, said Tom DeMark, the creator of indicators meant to identify turning points in the price of securities.

The S&P 500, which closed at 1,192.76 yesterday, will probably drop below the 11-month low of 1,119.46 set on Aug. 8 before surging above 1,363.61, its peak on April 29, DeMark said during an interview in London today. The rebound may last two to three months and also push the Dow Jones Industrial Average and Nasdaq Composite Index above their 2011 highs, DeMark said. European banks including Societe Generale SA “look like buys” after the shares tumbled this month, he said.

“We’re at the point right now where the next trip down will probably generate a buy signal,” said DeMark, the founder of Market Studies LLC. “Everything we follow is indicating the Dow Jones and the S&P should make a minor new recovery high, and probably the Nasdaq, too.”

U.S. stocks posted unprecedented swings last week as investors weighed signs of a resilient economy against the first downgrade of America’s top credit rating by S&P and Europe’s debt crisis. While markets are driven by the economy, prices tend to move in patterns that help traders identify the best times to buy and sell, according to DeMark.

Cohen, Soros

DeMark has spent more than 40 years developing market indicators -- with names like Sequential and Countdown -- and advised hedge funds including Steven A. Cohen’s SAC Capital Advisors LP, George Soros’s Soros Fund Management LLC and Leon Cooperman’s Omega Advisors Inc., according to the Market Studies website.

The S&P 500 plunged 6.7 percent on Aug. 8, before surging 4.7 percent, dropping 4.4 percent and jumping 4.6 percent in the next three days. Societe Generale and BNP Paribas SA, both based in Paris, sank to the lowest levels since 2009 on Aug. 10. Societe Generale has since rallied 14 percent, while BNP Paribas gained 5.3 percent and Zurich-based UBS AG, Switzerland’s biggest lender, advanced 17 percent.

“We’ve got the European banks all bottoming right now,” DeMark said. “SocGen, BNP, they all look like buys.”

DeMark said during an interview in January that U.S. stocks were within weeks of “a significant market top.” The S&P 500 sank 1 percent the next day, the most in two months. It then rose 4.8 percent to close at 1,343.01 on Feb. 18 before dropping 6.4 percent to 1,256.88 through March 16.

Equity indexes are unlikely to climb back soon to the record highs reached in October 2007 given that the longer-term trend for stocks is bearish, DeMark said. The S&P 500 closed at an all-time high of 1,565.15 that month.

“The overall trend is down,” he said. “You might be able to squeeze out minor new highs in spite of that.”