Bartels: Correction Is Only Starting, Merrill Analyst Warns

Last Updated May 10, 2010 2:04 PM EDT

Mary Ann Bartels, head of U.S. technical analysis for Banc of America Securities-Merrill Lynch and an Against the Grain favorite (you can find her forecasts here and here), suggested Monday morning that there is more to dislike about the stock market plunge last week than there is to like about the sharp recovery that's following it. Here's some of what Bartels said in a note to Merrill clients:

"In our view, the market is following the mid-term election year and decennial pattern cycle, which calls for a spring high ahead of a correction into the fall. The old adage of 'sell in May and go away' appears to be working. We continue to like gold in all major currencies....
"While Thursday's intra-day low of 1,065 [on the Standard & Poor's 500-stock index] deeply undercut 1,100, the S&P 500 has closed above this support so far. In our view, 1,100 is set up for continued tests, but more significant support that must hold remains 1044.5. A test of this level would be in line with a 15 percent correction off the 1,220 high. While 1044.5 holds, 1,325 remains a valid longer-term target....
"Until the market shows stronger signs of bottoming or capitulation, the risk is that oversold rallies are capped and the correction continues."
I'm not sure what Bartels sees in gold. Gold is already close to its December high, even after the sharp rally in the dollar. If the well established negative correlation between stocks and the dollar continues, the stronger dollar combined with renewed deflation fears would seem to work against the metal if stocks continue to fall.

That part of her forecast is hard to argue with. Bartels has been right about stocks all along; once investors realize that there's less to the massive European Union plan to rescue the euro than meets the eye, as I argued in a recent post, it's likely that she'll be right again.