Analyst Walter Zimmerman called recent economic data “lousy” and predicted the current stock market rally will not last.
“As far as the economy really improving, the latest quarterly [gross domestic product] was not that great,” Zimmerman, senior technical analyst at United-ICAP, told CNBC.
“When you look at it adjusted for inflation, median household earnings is not really recovering. The latest income numbers were pretty lousy. Retail sales are looking pretty lousy. What I mean by a financial crisis is when the stock indices get so far ahead of reality, then the degree of correction needed to align those things becomes traumatic.”
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
Zimmerman compared the current market with 2007 and 2000.
“If you take a step back and look at the even bigger picture from 2000, the pattern that emerges is what’s called a broadening top,” Zimmerman said. “You had a new high in 2000, big selloff in ’02. New high in ’07. Big selloff in ’09. Now this move up, if it makes a new high, it will complete a massive peaking power. I think there is a case for that.”
He cited 1,480 as a critical support level in the Standard & Poor’s 500 Index. The S&P 500 rose 7 points, or 0.5 percent, to close Monday at 1,525.20.
“That held, so there’s a chance of one more leg up, maybe to 1,590, best case,” he said. “Everything leads to a big brick wall overhead at 1,590.”
He suggests that those who are long should pick an exit point ahead of time.
“Everything that individual investors tend to ignore, they ignored it in 2007,” he said.
“They ignored it in 2000, and now they’re back, into the same vulnerable, worrisome set of overbought technicals that occurred in ’07. If you look back at the bigger picture since 2000, it hasn’t been a buy-and-hold market. It’s been a trader’s market.”
But other experts think the stock market rally will keep going.
Rob Lutts, chief investment officer at Cabot Money Management, told the Associated Press that despite having already logged strong gains this year, stocks may still be able to maintain their momentum as investors move money out of bonds.
"It's all about where the money is going," Lutts said. "If the money that is sitting on the sideline, or in bonds, is moving into equities that alone is enough to create that shift."
Investors poured $2.8 billion into U.S. stock mutual funds in the week ending Feb. 27, according to Lipper.
Scott Wren, a senior equity strategist at Wells Fargo Advisors, told the AP that stocks are likely to climb higher as investors who missed the rally at the start of the year buy stocks on any drops in the market. "I'd love to see a pullback, because pullbacks are opportunities," Wren said.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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