Editor's note: This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.
This is an expanded version of a research commentary sent to institutional and managed asset clients of FusionIQ on Friday, Oct. 10 at 1:00 p.m.
For the past couple of years, I have been rather negative on the economy, on the housing market and on the stock market. Recall our "
A few caveats are in order before we begin. First, bottoms are a long process. Given the extent of the credit crisis, and the depth of the current recession, we are looking not for a "V" bottom, but for a gradual improvement in equities from the deeply oversold levels.Second, we believe in slowly deploying capital rather than trying to "guess" at a bottom. Third, we believe that patience is a virtue, and anyone making the purchase this day, week or month is doing so with a six- to 18-month window and not a tick bite to return. Regardless, we see many signs that suggest a reasonable upside move is an increasingly high probability. What brings us to this conclusion? It isn't the economy. And the credit situation is even worse than it was a week ago. Rather, with rampant fear and prices now off more than 40% from their year ago highs, we like the odds of a 15%-25% rally sometime in the immediate future.
|S&P 500 Relative Strength, 1929-2008|
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