Should You Follow Tom DeMark?
- Joshua M Brown
- December 6th, 2011
Noted market timing guru Tom DeMark made a big, bold call this week that's got everybody running around like meth addicts in a disco.
Here's what he told Bloomberg:
The Standard & Poor’s 500 Index (SPX) may advance to between 1,330 and 1,345 this month before the rally reverses, according to Tom DeMark, the creator of indicators to show turning points in securities.
That would represent a rise of at least 5.8 percent for the benchmark gauge for American equities after the worst Thanksgiving-week drop since 1932 depleted sellers, said DeMark, whose 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. This month’s rally will end when the S&P 500 closes higher on four successive days, DeMark said.
“I had the strongest short-term buy signal I’ve recorded in 40 years” during the week of Thanksgiving, which fell Nov. 24, said DeMark, the founder of Market Studies LLC, in a phone interview. “It’d be an explosive move to the upside.”
"The strongest short-term buy signal I've recorded in 40 years." OH MY GOD!
So, should you follow DeMark and get the hell in right this second, long and margined to the hilt?
Depends...who are you and what are you looking to accomplish?
Are you a day trader or swing trader, in front of the monitor 40 hours a week and maintaining a risk management discipline at all times? If so, go for it - if you agree with him. In a world where everyone wants to be a market timer, you could do much worse than follow DeMark's calls. After all, if George Soros and Stevie Cohen are paying for his research, who could argue?
But if you're a regular investor or an asset manager looking to accomplish specific long-term goals using equity holdings as a vehicle toward doing that, DeMark's call this week should serve purely as entertainment - the will he or won't he nail it factor, if you will. Nothing could be stupider than chasing a 5% gain that even DeMark says will fall apart shortly after. No one should change their allocations because of a call like this unless they're invested with a time horizon of next Thursday.
DeMark concludes by saying that the rally will come to an end shortly after the New Year and fall apart leading to the same percentage decline. Only the nimble should react to this, only traders should be worried about either playing or fading the call. For everyone else, this is precisely the kind of thing you need to file away under Noise, Interesting.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.