“We’re setting up for one of the biggest bear market bounces that we’ve seen over the last 100 years,” Jeff DeGraaf says. "Spring is going to be a decent time for equities."
“One of the keys as we climb is to look at the percentage of issues above their own 50-day moving average," he says. "When it gets to about 80% pull the rip chord and start re-asserting the bear trend and get short again.”
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.
http://www.cnbc.com/id/29724434
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