Bank Of America Sees 10% Market Downside After Uptrend Breakdown, Says To BTFD

Tyler Durden's picture

BofA's chief chartist Mary Ann Bartels chimed in on last week's market correction, in which as many observed, the market briefly dipped to unchanged for 2011. As Bartels points out, with the August uptrend now breached, and various technical supports taken out, there is a possibility for another 10% drop in the broader index. Of course, it wouldn't be a Bank of America report if the conclusion was not the one and only permitted one: BTFD.

From BofA:

S&P closed below 1270 on higher volume - oversold yet?

Yesterday was not a 90-day down day for the US equity market, but is was a day where the S&P 500 closed below 1270 support on expanding volume. Several short-term indicators, the McClellan Oscillator, 10-day TRIN, and the 5-day put/call ratio (side bar), are oversold. In fact, TRIN was above 3.0 yesterday, which is most oversold reading since the August and November 2010 lows. A short-term rally is possible (S&P futures up overnight), but the difference between now and November/August that the S&P breached support on higher volume suggesting a deeper pullback. In August and November 2010, supports held.

Our theme is the same – we see pullbacks as buying opportunities. Next support is 1220-1170. A pullback that holds above or near 1220 would represent a successful test of the December 2010 breakout above those highs, which would be bullish for the US equity market intermediate to longer-term. There is no technical evidence to suggest an end to the cyclical bull market that began in March 2009. Resistance is 1350-1375. Our target on the S&P 500 remains 1400.

We once again reiterate our conviction that any attempts to predict headlines are foolish for short term trading action, while the only variable for the long-term direction is whether or not there will be a QE3. If yes - the dollar destrution will continue meaning nominal stock prices will rise. If not - watch out below.