Can a Sustainable Recovery Rally Happen Soon?

Both the S&P/TSX composite index and the S&P 500 have closed higher every day since hitting lows on Thursday, November 20. This is the first time either index has climbed four straight days or more since March 2008, when a string of up-days kicked off an rally that lasted into June, according to Ray Hanson, technical analyst at RBC Capital Markets.

“This past week’s action appears to be ushering in a sustainable intermediate rally as well,” he told clients. TSX data triggered a new buy signal on Friday’s close and corresponding signals for the S&P and Nasdaq 100 look set to register imminently, the analyst added.

In terms of volumes, they contracted as a result of the U.S. Thanksgiving holiday that closed markets in New York. However, this past Thursday and Friday saw the highest volumes since the October 10 low. Upside volume was 93.2% on Friday, Nov. 21. So as long as we don’t see another nine-to-one down day, Mr. Hanson said this indicator suggests a positive upturn.

“A number of technical divergences are now in place to support a sustainable recovery rally,” he wrote in a research note, highlighting that the VIX fell short of its late-October extremes and new 52-week lows on the NYSE remained well-below those levels as well. Bullish and bearish advisory sentiment have also reversed direction from their most extreme readings since late-1994.

With the TSX, S&P and Nasdaq all trading back above the highs of Nov. 19 – right before the last breakdown – RBC suggested that this would not have happened if the intermediate sell-off was not finished.

The firm expects that there will be a fourth quarter rally through the end of the year that continues to a point between the inauguration of Barack Obama on Jan. 20 and Valentine’s Day. It anticipates resistance near 12,000 for the TSX and 1133 for the S&P.

Mr. Hanson said:

Our long-term view has been, and continues to be, that the next four-year cycle low is not due until somewhere close to mid-2010. A broad, multi-quarter advance for equities does not appear likely to begin before that time. So a broad, rotational trading range would be our ‘best case’ for the next 15-18 months.

Comments

[market ace:]

SImply brilliant advice. I hope he bought on Friday.

2008 Dec 01 05:09 PM

[herbert hoover:]

These guys don't buy. They try to sucker the sheep into buying and then sell.

2008 Dec 01 08:58 PM

[Kunst:]

I bought. EEV on Wednesday, TWM on Friday. You keep working on that rally.

2008 Dec 02 02:09 AM