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It's Rally Time

By Jeff Clark
Tuesday, October 7, 2008

It may not be the final bottom of this bear market. But it is a bottom that should lead to a rally over the next few months.
 
Here's how I know...
 
On Sunday night, the S&P 500 futures were down 15 points. Futures on the Dow Jones Industrial Average were off nearly 200 points. Oil was trading below $90 per barrel, and gold was down about six bucks.
 
Monday was going to be another day of relentless selling pressure on every asset class. So I stayed up all night and tried to get as much work done as possible. I needed to be available to deal with all the phone calls I expected to receive when the selling started on Monday morning.
 
Last week, I told you stock-market bottoms tend to correspond with increased activity on my phone lines. So when the market opened at 6:30 a.m. Pacific standard time, I was ready for it. I had my e-mail inbox displayed on my laptop computer. My cell phone was within arm's reach on the right-hand side of my desk. And I had both of my portable telephones on my left-hand side.
 
The market opened down 200 points and fell another 100 points by the end of the first hour. But my phones were silent.
 
By 9:30, the market was down over 450 points. I was huddled up in the corner of my living room. My knees were pressed against my chest, and I was turning the table lamp on and off ala Glenn Close in Fatal Attraction. "Why won't they call?" I asked myself.
 
Ten minutes later, the phone started to ring... And it didn't stop for the rest of the day.
 
The most interesting phone call happened at 10:02 a.m. It was from my wife. She wanted my permission to give my phone number to an old high-school friend who had tracked her down. The friend remembered my wife mentioned at a reunion eight years ago that I was involved with the stock market. The friend's husband was buried in bad investments. He was panicking and needed to talk to someone.
 
"That's a lot of work to go through just to talk to a stranger about stocks," I thought to myself. "This must be a sign of the bottom." The Dow was down 566 points at the time of the phone call.
 
The market went on to lose a few hundred more points before reversing to close down "just" 369. By the end of the day, I had received 14 phone calls and over 35 e-mails from friends and relatives asking my opinion on the stock market. That's right in line with what happened back in March and July of this year. And it creates a pretty good sentiment indicator for a stock-market bottom.
 
Of course, I'm not relying solely on the "friends and family indicator" as a market barometer. Nearly every technical indicator I follow is grossly oversold and at levels from which strong intermediate-term rallies typically begin.
 
Including this one...
 
 
 
This is a chart of the S&P 500 plotted against the 20-day exponential moving average (EMA). You've seen versions of this chart before. The 20-day EMA acts as a magnet for the S&P. The index rarely strays more than 30 points from the line before the line's magnetic pull reels the index back in.
 
Right now, the S&P 500 is a whopping 114 points below the line. I've never seen a difference that large. And the pressure to bounce back toward the line is enormous.
 
At the very least, this chart suggests the risk of a further decline is minimal.
 
So I'm betting on a rally. It may not start today. But it will start soon.
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.12 -0.1% +10.6%
Oil 38.22 -0.2% -0.3%
Gold 139.11 +0.8% +22.3%
Silver 29.51 +3.2% +62.6%
US-Dollar 79.17 -1.3% +4.3%
Euro 1.33 -0.8% -10.4%
Volatility 18.02 +0.1% -15.2%
Gold Stocks 590.99 +1.6% +25.5%
10-Year Yield 2.94 -2.7% -15.5%

World ETFs
Symbol Price
Change
52-Wk
USA 122.76 -0.1% +10.6%
Canada 30.56 +0.2% +18.0%
Russia 21.98 +0.2% +17.2%
India 37.92 +0.2% +19.4%
Israel 16.76 +0.4% +10.4%
Japan 10.69 +0.5% +7.0%
Singapore 13.71 -0.2% +18.1%
Taiwan 14.92 +1.0% +20.2%
S. Korea 57.19 -0.2% +21.5%
S. Africa 72.26 +0.5% +29.7%
China 43.84 -1.3% -3.3%
Lat.America 53.21 +0.1% +9.2%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.74 +0.1% +20.2%
Big Pharma 63.99 -0.2% -3.2%
Internet 72.58 +0.7% +25.0%
Semis 16.18 -0.3% +26.4%
Utilities 31.19 -0.3% +1.8%
Defense 18.47 -0.3% +8.9%
Nanotech 10.08 +0.5% +1.3%
Alt. Energy 10.24 +1.6% -2.0%
Water 18.62 +0.7% +13.8%
Insurance 16.08 -0.4% +19.0%
Biotech 20.56 +0.1% +26.6%
Retail 19.59 -0.6% +26.6%
Software 24.65 -0.6% +22.7%
Big Tech 53.85 0.0% +22.1%
Construction 13.20 +0.8% +14.8%
Media 13.73 +0.7% +24.7%
Consumer Svcs 67.38 0.0% +23.4%
Financials 55.01 -0.1% +5.7%
Health Care 63.90 -0.6% +1.2%
Industrials 63.51 -0.1% +19.3%
Basic Mat 74.64 +0.4% +27.8%
Real Estate 55.35 +0.1% +21.8%
Transportation 91.39 -0.4% +23.9%
Telecom 22.65 +0.3% +16.8%