5/3/14, 3:18 PM Tom DeMark Says U.S.

Stocks at Risk of 11% Decline - Bloomberg
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Tom DeMark Says U.S. Stocks at Risk of 11% Decline
U.S. stocks will fall 11 percent starting as soon as next week should some price patterns
come true, according to Tom DeMark, the creator of indicators to show turning points in
securities.
The Standard & Poor’s 500 Index (SPX) will have peaked if it closes above 1,891 on
one or two instances without also falling to 1,884 in intraday trading, DeMark said in a
phone interview yesterday. He made similar statements in February, saying that if certain
conditions were met, U.S. stocks had reached a point resembling the time before the 1929
market crash. The S&P 500 rallied 8 percent over the next two months.
“If these price objectives are fulfilled, then I’m very confident we’ll make a significant
high,” said DeMark, the founder of DeMark Analytics LLC in Scottsdale, Arizona, who
has spent more than 40 years developing market-timing indicators. “These indexes could
be topping very soon.”
The Dow Jones Industrial Average (INDU) will start declining if the following
pattern happens: one daily close above 16,581, accompanied by an intraday high exceeding
16,661, according to DeMark.
Stocks have soared in the past five years as record corporate profits and three rounds of
economic stimulus from the Federal Reserve made equities one of the best investments.
The S&P 500 has risen for nearly 31 months without a decline of 10 percent or more,
versus the average of 18 months since 1945, according to data from S&P Capital IQ
strategist Sam Stovall.
Stocks Overvalued
Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co.,
said the S&P 500 will climb above 2,250 before collapsing after the next U.S.
presidential election. The S&P 500 Index, currently around 1,880, is already 65 percent
overvalued, Grantham wrote in a quarterly letter released yesterday.
U.S. jobs data may set the stage for U.S. stock performance today. The unemployment
rate probably dropped to 6.6 percent this month, according to the median forecast of 86
5/3/14, 3:18 PM Tom DeMark Says U.S. Stocks at Risk of 11% Decline - Bloomberg
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economists in a Bloomberg News survey. The Labor Department will release the data at
8:30 a.m. New York time. A separate survey estimated the U.S. added 218,000 jobs in
April, the most since November.
“Markets top on good news, not bad news,” said DeMark. “A good employment number
could exhaust the upside. When the market makes a peak, you’ve exhausted the last vestige
of buying.”
Probably Unravel
The S&P 500 was little changed at 1,883.68 yesterday. The Dow average slid 0.1 percent to
16,558.87 after reaching a record.
Some of DeMark’s call have proved prescient. In September 2011, he predicted the S&P
500’s retreat would stop at 1,076. The index bottomed at an intraday low of 1,074.77 in
October that year.
“If we get a down close today and tomorrow we open lower and trade lower, we’re probably
going to unravel,” he said in a Feb. 5 interview with CNBC. DeMark said yesterday that call
was incorrect because stocks didn’t meet those conditions.
DeMark, who advised Steven A. Cohen’s SAC Capital Advisors LP, said in October 2012
the S&P 500 would rally to 1,480. Instead the index dropped over the following two
months, reaching a closing low of 1,353.33 in November 2012.
On Jan. 24, DeMark told Bloomberg News China’s Shanghai Composite Index
(SHCOMP) would probably bottom out within days and rally “sharply.” The gauge
slipped 1 percent the next day before rising in six of the next seven days en route to a 5
percent increase over the following two weeks.
DeMark has provided consulting to hedge funds including George Soros’s Soros Fund
Management LLC and Leon Cooperman’s Omega Advisors Inc. His company makes
money by charging traders for access to its indicators. It also sells subscriptions to the
indicators on the Bloomberg Professional service. Bloomberg LP, the parent of Bloomberg
News, takes a percentage. DeMark has a similar arrangement with Thomson Reuters Corp.
To contact the reporter on this story: Joseph Ciolli in New York at
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jciolli@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at
lthomasson@bloomberg.net Michael P. Regan