There are not many technicians that Steve Cohen has on speed dial, but Tom DeMark, whose indicators grace the default graphs of many Bloomberg terminals around the globe, is one of them. One reason may be DeMark's recent track record, having called a "Sell" on November 3 which was close to the all time high in the S&P, shortly after which US indices tumbled leading to the worst start of the year in history hitting DeMark's targets well ahead of time.
Earlier today, just as global stocks entered a bear market, DeMark spoke with Bloomberg TV, and may have been one of the catalysts for today's violent surge off the lows just as the Dow Jones was crashing by over 550 points, when he said that "today may have been an interim low" highlighting that the intensity of the decline is comparable to the plunge in November 2008 and August 2011, both of which were followed by reflex rallies of 5-8%, roughly the same as what he expects now:
We think it could be a pretty good rally off that low; We're going to have a two-step affair: a low today, maybe tomorrow and then we rally and people take a deep breath. After we see that rally, maybe anywhere from a week and a half to three weeks, we decline again and I think that's coincident with the Shanghai Composite and the Hang Seng Index declining.
Incidentally, he said this just around noon when stocks were at their lows, so he did not have the benefit of hindsight from the market close. However, this good news for US stocks if only in the short-term, will not be shared by their Asian peers: DeMark discussed the Hong Kong and Chinese market, and sees those as continuing their fall:
We are pretty confident the next level on the HSCEI is below 7,500. We think what we're going to see in the HSCEI is four consecutive, maybe five, lower closes and that should bottom that market. We should get down below 7,500 and the Shanghai Composite we should still get down to objective which is about 2,500-2,600.
DeMark then reveals why at this point a central bank intervention, which gratifying in the very near term, would be the worst possible outcome for a stable, long-term rally in stocks:
Markets bottom when the last seller has sold and markets top when the last buyer has bought. We are looking for a bottom that's a secondary bottom where you make one bottom, you rally, make a lower low and the internals of the market show that there's strength and at the same time when we make that low there's a low of negative news: we don't want to see positive news from the government; we don't want to see positive news from central banks. That interferes with the rhythm of the market.
Finally since this was a typical soundbity finTV interview in which the anchors always have to know what, if anything, the interviewee is buying, we found DeMark's answer to be wonderfully laconic:
If I were a long-term buyer, I'd wait. Today we got -2,500 net declines in the NYSE. We'll rally, we'll make a lower low, and maybe we do -1,500 for a few days which would be a divergence and indicates that we are probably at a bottom. We could recover 40% of the decline subsequent then to that but we do have a lot of damage done to the market long-term.
The interview took place just after noon, which may explain why the Steve Cohens of the world bought today's massive dip and sent some of the most shorted stocks soaring in an epic closing dash for trash.
What happens next? DeMark could well be right, however his call for a rebound has been consensus for the past few days, and ironically the reason for today's sharp decline may have been that everyone was expecting stocks to jump which may explain why they did precisely the opposite.
In any event, look for the next few days to see if DeMark still has his magic. We, on the other hand, would rather wait for "Gandalf" Kolanovic' next take.
Full interview below: