S&P Could Fall 20%

Discussion in 'Trading' started by S2007S, Sep 12, 2011.

  1. S2007S


    Between this article and yesterdays article with Harry Dent predicting the DOW going to 3000 who knows where this market is actually heading, on one side you have Abbey Cohen predicting SPX 1450 by the end of 2011 and then you have predictions of the SPX dropping 20% and the DOW heading to 3000, as much as I want to believe one of these predictions I think this market will be range bound for quite sometime but do think that in the next 3-6 months the SPX breaks 1000, maybe even a bit sooner!

    S&P Could Fall 20%, 2-Year Treasury Hit 0%: Analyst
    Published: Monday, 12 Sep 2011 | 4:27 PM ET
    Text Size
    By: John Melloy
    Executive Producer, Fast Money & Strategy Session

    Rising risk aversion, a surging U.S. dollar, historical seasonal weakness and a climb in bonds could send the S&P 500 down as much as 21 percent from Friday’s close, according to Mary Ann Bartels, Bank of America Merrill Lynch’s technical research analyst.

    The 2-year Treasury yield could drop to zero, Bartels added.

    Getty Images

    “There is still a chance that 1100-1020 holds, but the risk is now higher, or a 50 percent probability, that the S&P [.SPX 1162.27 8.04 (+0.7%) ] tests 985 – 910,” wrote Bartels, who is often chosen among the top chart analysts in an annual survey by "Institutional Investor" magazine. “September historically is the worst performing month in the year, while October traditionally marks important market bottoms.”

    The S&P 500 is already down 15 percent from its bull market high hit at the start of May. Bartels believes that the benchmark will retest the 1100-1020 area and if it fails there, then look out below. She gets her target in the 900s using a combination of commonly-used factors, most notably a 61.8 percent Fibonacci retracement of the March 2009 to May 2011 rally.

    The CBOE volatility index [.VIX 38.59 0.07 (+0.18%) ]—nicknamed “The Fear Gauge”—has jumped 40 percent since the start of August. The CBOE put/call ratio, which measures the total volume of put options versus call options, is jumping as well, signaling investors are buying more and puts to hedge against a fall in equities, points out Bartels, whose gained a reputation for her deep analysis of holdings by hedge funds and speculators.

    What’s more, the problems in Europe are causing a flight to safety into the U.S. dollar [.DXY 77.28 -0.30 (-0.39%) ], which has a very tight inverse correlation with equity markets at this stage. Despite the downgrade of U.S. debt earlier this year by S&P, the dollar still represents the risk off trade.

    Beyond the money

    As for bonds, Bartels makes a simple channel around the past highs and lows of the two-year yield. The bottom part of the channel leads right down to zero percent, meaning investors will keep buying these notes and expect nothing in return except their principle. She sees a similar drop in the long-end of the curve with the 10-year Treasury yield going as low as 0.3 percent.

    This flattening of yield curve will only hurt banks’ ability to make money on lending over time.

    “I fear she is right on point,” said Chris Verrone, a chart analyst for Strategas Research, who correctly got bearish for his clients recently. “The biggest takeaway from me over last few weeks is continued deterioration in credit.”

    Goldman Sachs [GS 102.92 0.67 (+0.66%) ] broke $100 for the first time since March 2009 on Monday as financials continue to fall at a more rapid rate than the rest of the market. European banks are already at their 2009 lows.

    “If the financials are the ‘tell,’ they are on their way to revisiting the '08 - '09 lows,” said Stephen Weiss, a hedge fund manager for Short Hills Capital. “Europe does bear a scary resemblance to the last U.S. financial crisis and will drive down indices.”

    Bartels suggests buying consumer staples, mining stocks and betting against consumer discretionary stocks to protect from the decline and volatility.

    “The violent swings within the market are more typical of a bear market than a bull market,” she said.
  2. Wotta maroon.
    Citing volatility is the sure sign we're dealing with a long-only buffoon. All volatility means is that uncertainty is rife; how that uncertainty resolves itself is the part that's, well, uncertain.
    The eurozone politicians just might get it right. It wouldn't mean they're competent, it would just mean they hit the target they weren't aiming for. The practical result is the same, as Lee Harvey Oswald learned to his eternal regret.
  3. Sounds like a BUY to me!!:p
  4. The sky could fall.
    The SPX could've bottomed yesterday.
    S2007S could be hit by a truck tomorrow.
    So what! [​IMG]
  5. My long term indicators continue to warn of significant USD strength and AUD / NZD / EUR etc weakness and these signals have increased since 2009.

    Unfortunately the March 2009 equity lows eventually will be breached.