After 1,200 days, is a correction in the cards?

Published Wed, Feb 4 201511:02 AM EST

The latest numbers from the popular sentiment report by Investors Intelligence shows that more than a third of financial newsletter writers are expecting a correction in the U.S. stock market. It's been more than 1,200 days since the S & P 500 experienced a 10 percent or greater pullback. II figures show 34.7 percent of those polled see a correction, up from 31 percent a week ago. All of those new correction callers were formerly in the "bull" camp as the positive strategist numbers dropped to 49 percent from 53.1 percent a week ago. The outright bears remained at 16.3, unchanged from seven days ago, according to II. "I believe that the end of Fed QE (cannot be replaced by ECB QE in its influence) and growing possibility in my mind of a June rate hike, at the same time earnings growth is slowing, dramatically raises the risk of a stock market correction," said Peter Boockvar, strategist for The Lindsey Group, who quoted the figures in a Wednesday morning note to clients. "After six years into a bull market where valuations are very stretched, investors should be watching their back and not swinging for any fences anymore." To be sure, going this long without a correction is not unprecedented. A report from RBC's Jonathan Golub last month pointed out that there have been two other longer stretches by the S & P 500 without a correction. They was a 2,553 day stretch from 1990 to 1997 and a 1,673-day run beginning in March 2003. Golub points out that most bull markets end with a recession and not a Fed increase. Perversely, Investors Intelligence sees its Wednesday report as a short-term bullish sign. "It should be short-term positive. Overall some advisors lack a strong commitment to the bullish trend and even when they are optimistic they are not reluctant to change," II said. But other notable Wall Street strategists believe the turbulence of January will be resolved with at least a 10 percent decline and maybe worse. Read More February outlook: Retail, energy and a correction? "We still see the pattern of 10-day new highs for Nasdaq versus the Composite Index as a significant negative divergence," wrote Alan Newman in his latest Crosscurrents missive. "Breadth and new highs/new lows have been in a persistent negatively diverging phase for many months and point to more than just an ordinary correction. Virtually all of our indicators point to a bear market underway." The percentage of calls for a correction in the II weekly survey is at the upper end of its range for the last two months, according to II, so not an extreme by any means, but perhaps still reason for pause. If one wants to trade along with the correction call, the ProShares Short S & P 500 ETF is inversely correlated with the S & P 500. For more sophisticated investors, call options on the CBOE Volatility Index could be bought.

Traders work the floor of the New York Stock Exchange.

Getty Images

The latest numbers from the popular sentiment report by Investors Intelligence shows that more than a third of financial newsletter writers are expecting a correction in the U.S. stock market.