'Tsunami Rally' Fast Approaching - Octagon Capital

Investors may find it hard to believe, but the bottoming process has undoubtedly begun as monetary, economic, valuation and sentiment factors are all giving bullish signals, according to Leon Tuey, technical analyst at Octagon Capital.

Since September, the U.S. Federal Reserve has opened the floodgate with the Adjusted Monetary base – a key measure of the money supply – this week showing year-over-year growth of 61.9% and 1,414.1% from two months ago, he told clients.

He added:

As grim as the economy looks, the unprecedented monetary easing will ultimately have a salutary effect on the economy.

Mr. Tuey also noted that by any metrics, the market is historically undervalued and is at a low-risk and very-high reward juncture point. At the same time, the sentiment backdrop is constructive given that investors are gripped by fear, which is always associated with important market bottoms, he added.

He said:

Furthermore, record amounts of cash are sitting on the sidelines, and while the public is leaving the market in droves, insiders and the value investors are buying.

And the good news doesn’t stop there. Other than the advance-decline line, monthly charts for the Dow Jones Industrial Average, the S&P 500 Index and the New York Composite Index are demonstrating the most oversold condition since at least 1970, Mr. Tuey noted.

“The current oversold condition is like a giant elastic band stretched to the limits,” he said, suggesting this is one of many reasons why a “Tsunami rally” is at hand.

Comments

[patio:]

Imagine, a trading firm that makes money trading, imploring people to trade.

2008 Dec 05 08:45 AM

[Fabien Hug:]

The problem with tsunamis is that in order to survive you have to run very fast and that you usually stand in the sand to start with. Second, you have to swim really well in very choppy waters and few people know how to swim even in a swimming pool.

2008 Dec 05 09:44 AM

[rber:]

The other thing about sunamis is that they are usually one large wave raising the water level for just enough time to strike terror (or giddy bulls to buy in a stock buying sunami) only to disappear as fast as it arrived. Enjoy it while/when it happens cause it ain't gonna last.

2008 Dec 05 10:25 AM

[Lilliana:]

Tsunamis
Let it come..We'le soon learn to swim..
At the moment we're floundering on rocky financial shoals.

2008 Dec 05 11:57 AM

[DaveW:]

Trade it and sell it into strength, buy SRS for the tsunami's rip-tide...

2008 Dec 05 02:09 PM

[Socialism c...:]

Author is so out of touch it's not funny. Undervalued? You can't say "undervalued" without knowing what earnings are going to be. I have a feeling that they are going to drop off a cliff. Peter Schiff says so too...the reason is that past earnings are based on a phony economy built on excess leverage...a deleveraged economy will be a "sea change" in terms of GDP.

2008 Dec 05 03:17 PM