The stock market has seen its highs for the year, and possibly the next several years, according to Walter Zimmermann, United-ICAP Chief Technical Analyst.
In a new report, Zimmermann makes the case that the broad-based NYSE Composite Index peaked this week for 2012, and the increasingly volatile and fragile markets could undermine equities for the next several years.
“I don’t remember the last time that so many things were bearish for stocks,” he said in a phone interview with CNBC. “Everywhere I look I see warning signals.”
Zimmermann keys into several factors including, the long-term divergence between the broad based NYSE Composite Index and its richer cousin, the blue chip S&P 500. The divergence, he noted is not the S&P 500 leading stocks higher but rather, the NYSEfailing to confirm the move and warning of a move lower.
He added that the intermediate price patterns in the S&P 500 and an increasingly high Relative Strength Index (RSI) confirm his market top thesis, along with every contrarian’s favorite — extremely high bullish sentiment. Stocks are “overbought”, said Zimmerman and vulnerable to a major correction to the downside.
Zimmerman also dismisses the idea that another round of quantitative easing, or QE3 will come to the rescue of a weakening economy. “Never before has more hope been invested in central banks as saviors,” he writes, referring to the near manic obsession of the markets. He said this is misguided because the long-term trend is for less spending and less lending, which leads to a continuing downtrend in the velocity of money. Stimulus only works when people want to spend and banks want to lend. (Related Link: Quantitative Easing Explained.)
“Hope is not a strategy,” he wrote.
The bearish technical signals coincide with another report out this week from the head of market strategy at Goldman Sachs , who sees the S&P 500 ending the year at 1250. (Related Link: Goldman to Clients - Get Out of Stocks Before Fiscal Cliff Hits.)
When asked, Zimmermann pointed out that he prefers to say that the “fundamental outlook supports the technical conclusion.” Either way, he added: “Even if we make another nominal high, it’s not going to change the overwhelming bearish tone of the technical picture.”