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For months investors have been whispering cautiously about a market bottom. It’s certainly the trillion dollar question – and one that can only be answered with confidence in hindsight.
But you need that information now -- so for insights we turn to Jeff DeGraaf, ISI Head Of Technical Analysis Research. He’s the #1 analyst in his field as ranked by Institutional Investor magazine.
Here’s a summary of DeGraaf's analysis.
First DeGraaf explains that we need a 35% rally just to get back to the 200-day moving average. Looking at a chart of the S&P 500 from 1929-1934, he says not since 1931 has the S&P been so far from its 200-moving day average. DeGraaf interprets the pattern to mean the market is extremely oversold.
Then, he looks at the AAII bear readings from the last 20 years. The patterns reveal that 70% of investors are bearish and that the retail crowd is tuned out.
Also, he tells us the number of new lows on the S&P has been contracting over the past several months. Even though we're 140 points below where we were in October the number of stocks making those lows is about half. That's a bullish divergence.
These are good conditions but they don’t mean anything without a spark. On Tuesday we got the spark, DeGraaf says.
That spark combined with the factors mentioned above should provide a strong under-pinning for some kind of rally.
What’s the bottom line?
At a minimum, we’re in a bear market bounce. Don't be short. To see DeGraaf’s complete interview as well as this charts used in his analysis please watch the video above.
And if you’re looking for stock picks DeGraaf says look at Sprint [S
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] and Morgan Stanley [MS
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]. Patterns in both charts look bullish.
- Your First Move For Monday November 16th
- Web Extra: Where Will The Next Bull Come From?
- Burned by Yahoo!, Disney and More
- The Latest Picks That Paid – Friday November 13th
- Pops & Drops: Dow Chemical, Macy's...
- Chartology – Can Stocks Break Above 1100?
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Trader disclosure: On Mar. 10th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (MSFT); Finerman's Firm Owns (DNA) & (DNA) Calls; Finerman's Firm Is Short (BBT); Finerman's Firm Own (RIG); Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO); Syemour Owns (AA), (BIDU), (EEM), (FXI), (TTM), (BAC), (TCK), (RSX); Karabell Owns (AAPL), (BHP), (FCX), (FXI), (GOOG), (GLD), (GE), (JPM)
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