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In his most recent research note, David Rosenberg says we have likely seen short-term capitulation within a secular bear market.  But make no mistake – this doesn’t mean we are entering a new secular bull.  This is merely another minor dead cat bounce within the larger bear market.  He notes 6 reasons to expect further upside:

“1) The USA Today consensus showed that strategists have cut their year-end S&P 500 target by 8%.

2) Wall Street economists are at 40% recession odds, which means if the heads of research allowed them to really say what the probability was it would be 80%.

3) Bank of America let its chief equity strategist go who was calling for 1,450 on the S&P 500 and the most bullish seer of out there (we wish him well).

4) The AAII investor sentiment suvey shows 30.2% bulls and 40.3% bears.

5) The Investors Intelligence survey also did a switcheroo, with the bull camp in the past week down 3.2% to 35.5% and the bear share rising the same amount to 40.9%. That is the largest number of bears since March 2009 (was 21.5% at the July market peak). And we have the fewest bulls since the August 2010 retest of the lows back then. The “spread” is now -5.4% between bulls and bears, well off the +28% gap at the July market peak.

6) Short interest on the NYSE and Nasdaq surged nearly 4% in the second half of August; these positions are now being squeezed, which is the “buying support” the market has been experiencing in the low volume rally of the past few sessions.

Remember, it is not at all unusual to see the stock market enjoy a relief rally after the initial 20% leg down in a cyclical bear market.”

Source: Gluskin Sheff

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