Why Stocks Could Easily Rally 30% By January
By Jeff Clark
December 9, 2008

Santa landed on Wall Street yesterday.

The S&P 500 rallied above 900, thereby completing a "higher low and higher high" pattern on the chart. Here, take a look...

You can see how last week's low was higher than the low from mid-November. And yesterday's high took out the high from the day after Thanksgiving. This "staircase" pattern is the first step toward establishing an uptrend. And it likely signals that the "Santa Claus rally" (the seasonally bullish move that almost always happens this time of year) has finally come to town.

We should see solidly higher prices over the next few weeks.

Of course, that doesn't mean stocks will go straight up from here. In fact, after such a strong move up during the past week, stocks are quite extended and probably need to pull back a bit in the short term. But any weakness from here is a buying opportunity.

It's been a long time since I've been able to say that.

Take another look at the chart. Ever since stocks started falling in September, we've seen nothing but lower lows and lower highs. Now, it looks like the trend has changed. The path of least resistance is higher. And traders need to concentrate on buying dips rather than selling rallies.

The first clear level of resistance on the S&P 500 is 1,000. That corresponds with the November and October highs. But if the market can get above that, then 1,150 is a reasonable target. That's a gain of about 30% from current levels. Given the amazingly oversold long-term conditions, we could hit that target by New Year's Eve.

Stocks Could Rally 40% in the Next Four Months The Ghost of Christmas Past

Keep in mind, though, this rally won't signal the end of the bear market. It's just a good, strong, counter-trend rally. I'm confident traders will have to suffer through one more significant down-leg before the bear is finally put to rest. (You can review my reasoning here.)

In the short term, though, you should buy into any weakness. Santa is in town, and it should be an early Christmas for investors.

Best regards and good trading,

Jeff Clark

2,267 Free Businesses
Stocks have fallen so far that 2,267 companies around the globe are offering profits to investors for free. That's eight times as many as at the end of the last bear market, when the shares rose 115 percent over the next year.

Bank of New York Mellon Corp. in New York, Danieli SpA in Buttrio, Italy and Seoul-based Namyang Dairy Products Co. hold more cash than the value of their stock and debt as the slowing world economy wiped out $32 trillion in capitalization this year. Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39 percent sell at a discount to shareholder equity, data compiled by Bloomberg show. Read on...