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This market strategist says stocks could gain 8% to 15% from here — giving anxious investors a perfect selling opportunity

The US stock market’s massive drop on May 5th actually increases the likelihood of a strong rally soon to begin, even if it doesn’t start a new phase of the bull market.

That says Hayes Martin, president of the consulting firm market extremes. Over the years, I’ve reported on Martin’s predictions of market turning points that have been overall impressive. (For the record, Martin doesn’t have an investment newsletter; my newsletter tracking company doesn’t check his investment performance.)

Just a week ago I checked with Martin who said at the time that a strong counter trend rally in the 8% to 15% range could start soon. I contacted him again in the middle of the May 5 trading session to see if his forecasts had changed on the Dow Jones Industrial Average DJIA.
-0.30%
Win 932 points on May 4th and give it all (and more) back the next day.

Martin said the net effect of the recent tremendous momentum is to boost his confidence that this 8% to 15% rally could start soon. “We’re getting closer with today’s campaign,” he said.

One reason for his heightened optimism is what he calls “bottom divergences” — by which he means situations in which the market as a whole is behaving more than meets the eye when looking solely at the market averages. Bottom divergences have bullish meaning, just as their opposite – top divergences, when market averages paint an unjustifiably rosy picture – are bearish.

Martin’s view that bottom divergences have strengthened in recent sessions is based on a number of indicators and is beyond the scope of this column to review. But a good example of Thursday’s bottom deviations comes from comparing the performance of the S&P 500 SPX,
-0.57%
(which is cap-weighted and therefore dominated by the highest-rated stocks) with the equally-weighted version (represented by the Invesco Equal-Weighted S&P 500 ETF RSP,
-0.92%.
Trading on Thursday, the equal-weighted version outperformed the capital-weighted version by 0.6 percentage points.

Similar divergences were evident in other parts of the market as well. The equally weighted ETF version of the Nasdaq 100 Index QQEW,
-2.12%
hit the cap-weighted version QQQ,
-1.20%
B. by 0.4 percentage points.

Martin reiterates the cautionary advice he gave a week ago: Don’t get carried away when the market recovers. It is most likely a countertrend rally within a bear market, not the start of a new phase of the bull market. Martin’s best guess is that the rally will present “another selling opportunity” to reduce stock positions.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Why Did the Dow Plunge More Than 1,000 Points? Should I wait for stocks to go lower? Here’s what some pros think.

Also read: These 13 Nasdaq 100 stocks have seen the biggest swings up and down after the Fed hiked rates. Should you be intimidated?

https://www.marketwatch.com/story/this-market-strategist-says-stocks-could-gain-8-to-15-from-here-giving-anxious-investors-a-perfect-opportunity-to-sell-11651820169?rss=1&siteid=rss This market strategist says stocks could gain 8% to 15% from here — giving anxious investors a perfect selling opportunity

Brian Lowry

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