DeMark Says S&P 500 Climbing to Oct. 27 Peak Is ‘Critical’

By Ksenia Galouchko and Adam Johnson - Dec 23, 2011 5:29 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) is likely to extend gains should it advance 2.4 percent to its Oct. 27 closing level and then close higher on three or four straight days, according to Tom DeMark, the creator of indicators to show turning points in securities.

The benchmark gauge for U.S. equities closed at 1,284.59 on Oct. 27 and advanced 0.8 percent to 1,254 today. DeMark of Market Studies predicted on Dec. 5 that the S&P 500 would advance to between 1,330 and 1,345 this month before the rally reverses. The latest forecast will expire by the end of the first week of January if it doesn’t come true, Market Studies’s Roderick E. Bentley said in an e-mail.

The Oct. 27 close is “very critical,” DeMark, the founder of Market Studies, said today in an interview on Bloomberg Television’s “Street Smart” with Lisa Murphy and Adam Johnson. “The market still looks like it will go higher.”

The S&P 500 rallied a third straight day today as better- than-estimated jobless claims, consumer confidence and leading indicators bolstered optimism in the world’s largest economy. The index for American equities has advanced 4 percent during the streak.

The S&P 500’s advance from its 2011 low on Oct. 3 faltered after the gauge closed above the 200-day threshold on Oct. 27, Oct 28 and Nov. 8. The index also traded above the level on an intraday basis for three days starting Dec. 5, only to retreat amid concern that European leaders may not be able to contain the region’s credit crisis.

DeMark’s prediction in September that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4.

‘Upside Direction’

“Usually, when a market makes a top like it did back in the first week of December, it does correct 5-6 percent and rallies again,” DeMark said today. “Typically, that peak is taken out. Our models are still telling us that the upside direction is to follow the market.”

DeMark, who has spent more than 40 years developing indicators with names like “sequential” and “countdown,” said on Oct. 25 that a rally by the S&P 500 above 1,254 would “trap” bulls. The index peaked three days later, then dropped 9.8 percent through Nov. 25.

The three-day rally in the S&P 500 has trimmed this year’s decline to 0.3 percent. The index is still down 8 percent from this year’s high in April, joining a global rout in equities, as concern about Europe’s debt crisis overshadowed better-than- estimated American economic data.

“The model we use has not spoken unfortunately, but it is still directing us to the upside,” DeMark said today.

DeMark, an adviser to Steven A. Cohen’s SAC Capital Advisors LP, provided consulting to hedge funds including George Soros’s Soros Fund Management LLC and Leon Cooperman’s Omega Advisors Inc. Advisors Inc.

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Adam Johnson in New York at ajohnson65@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net