In a column I wrote in February for The New York Times, when the Standard & Poor's 500-stock index was around 840, she predicted that the index would bottom at 665, which turned out to be off by a single point. In a report for Merrill clients, highlighted in a column here in April, she encouraged investors to remain in stocks. The S&P was in the mid-800s then, too, but on its way above 1,100.
Bartels has turned skeptical lately and is warning investors to expect a correction. In a note issued Monday, she cited a laundry list of factors stirring misgivings.
Trading volume is shriveling up, she noted, a sign that momentum is waning. Fewer than 5 billion shares have changed hands on the New York Stock Exchange for eight straight sessions. Last spring, days with 7 billion to 9 billion shares traded were routine.
Market breadth (the proportion of rising to falling stocks) has been weaker than would be expected for the gains that key indexes have been recording. The same goes for the number of issues reaching new 52-week highs versus new lows.
Although Bartels didn't put it quite this way, these developments suggest to her that the pros are dumping their shares off to the suckers and chumps.
"It remains our concern that distribution - underlying selling - is taking place," she wrote. "Current volume patterns are a sign of money shifting from strong hands to weak hands."
Another worrying sign, one highlighted in a recent column here about shares of smaller companies, is the decline in short interest. That means that fewer investors are betting on falling stock prices, a wave of bullish sentiment that, in fine contrarian style, tends to occur just before prices fall.
Bartels points out that short interest for the broad-based S&P 1,500 index fell sharply last month, reaching its lowest level since November 2007. Another contrarian indicator, the proportion of bears in the weekly Investors Intelligence survey of investment newsletter editors, is also close to lows put in around the same time. Those were the good old days, when the market was near all-time highs and perched on the cliff from which it would descend by more than half.
Is that about to happen again? Bartels isn't predicting anything so drastic. She foresees a correction of one-third to two-fifths of the advance since early March.
Assuming that the market starts falling from close to current levels, her target for the S&P 500 is about 935. But she warns impatient bears not to count on the market being quite so accommodating or prompt.
The overbought, precarious conditions that Bartels has identified "can remain in place for weeks, if not months, causing choppy equity markets," she said. "The key message the market is signaling, in our view, is this is a maturing rally, not the early stages of one."
- Grantham, After Forecasting Rally, Warns That a Reversal Is Approaching
- Correction Has Been Postponed, Not Canceled
- Don't Get Used to a Five-Digit Dow