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Pros Say: 'Aggressive' Bear Rally Coming

CNBC.com
Thursday, 23 Oct 2008 | 9:17 AM ET

Japan's Nikkei hit a 5 and a half year low Thursday but bounced back in what some analysts say it is a sign that many stocks are oversold.

WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT

And even if the markets haven't hit the bottom, a sharp, but temporary rise in stock prices is possible, but it is too early to call a bull run, experts said.

Rally is Near

An "aggressive" bear rally will happen in stock markets by the end of the year, and "what will drive it is the realization that the world is not coming to an end," Philippe Gijsels, senior equity strategist at Fortis Bank told CNBC.

Financials and technology will be the sectors that will bounce the most, Gijsels said.

"We have come down so much that this process may be reversed. I strongly believe that by the end of the year we will be much higher than we are today," he said.

Prepare for the Bounce

"We're near another major cycle low," Edward Loef, technical analyst at Theodoor Gilissen Bankiers said when analyzing the DJIA. He expects the Dow to hit a major low in the next 2 weeks and then rally soon after.

The chart for the MSCI USD World Index with RSI indicates the index has hit a low and investors should be prepared for a bounce, Loef added.

Loef expects the Euro Bund to raise to a high around 119. Once the bund future has hit that mark, Loef suggests investors reverse their positions and sell bunds and to buy stocks.

Dollar Rally to Continue

The dollar will continue to strengthen against most major currencies, with the exception of the Japanese yen, says Thomas Harr, senior FX strategist at Standard Chartered.

Digging for Value in Europe

There is value to be found in Europe's telecoms, pharmaceutical companies and food retailers, says Willem Nabarro, MD & head of European equities at Exane BNP Paribas.

Bond Picks for Safety

Investors buying into the bond markets could stand to make stock-like returns with far less risk, says Daniel Frishberg, chief investment strategist at LafferFrishberg.com. He reveals his top bond picks to CNBC.

Buy the Decline in Spreads Next Year

"Corporate credit spreads relative to safe-haven US government paper or European government paper are just way, way, way out of line," Bob McKee, chief economist at Independent Strategy said.

"As the rush to safe-haven paper begins to wane, we'll see government yields go up, so that spread is going to narrow significantly over the next year."

Markets Under a Black Spell

"It's almost as if some black magic spell has been cast over the entire market, where no body feels they can believe in anything anymore because it's not going to be sustained by the other players in the market," Chris Tinker from ICAP told CNBC Thursday.

"Until we get to that point, where as an investor you can understand what other investors are doing, you are going to see this rush for the exits at the end of the day," Tinker added.

Pound Weakness Set to Continue

The pound could bounce back versus the dollar in the short term, but could then fall toward 1.5610, Pamela McCloskey from Credit Suisse told CNBC.

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