One on One With Mary Ann Bartels, Chief U.S. market strategist at Merrill Lynch
Monday, June 19, 2006
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SUSIE GHARIB: Our guest tonight says the stock market is still in for another big sell off. Joining us now, Mary Ann Bartels. She is the chief U.S. market strategist at Merrill Lynch and specializes in technical market analysis. Mary Ann welcome to the program.
MARY ANN BARTELS, CHIEF U.S. MARKET STRATEGIST, MERRILL LYNCH: Thank you for having me this evening, Susie.
GHARIB: Well, Mary Ann, you say that there`s another big sell off to come. How much lower do you see the stock averages going before they hit bottom?
BARTELS: Well, before we are all finished through this year, we think the (INAUDIBLE) S&P 500 can have anywhere between a 15 to 20 percent correction. The markets are extremely oversold at these current levels. We think the market is actually testing the recent lows. There is a chance that we actually stabilize and even have a rally here into the summer. It is possible, but we are looking for a secondary correction on the magnitude of 15 to 20 percent.
GHARIB: And so then, what is the time table for that sell off, the fall and will it be global?
BARTELS: We are looking for an important market low to happen in the fall. Typically, September is a very weak seasonal month, and we make important market lows in October and as you can see, this was a global correction that we have had. What we really saw was the leveraging of hedge funds. As interest rates have been rising globally, we have had hedge funds have to be levered, their portfolios on a global scale. They were long non-U.S. - excuse me, they were long U.S. markets and they were under weight the U.S. market and as interest rates rose and liquidity came out, they had to unwind those positions and many of them had the same trade-on.So when they tried to exit, they all run for the doors at the same time and that explains the sharp correction that we have seen on the global scale. So, any corrections that we would see further, we would expect them to be on the global basis.
GHARIB: Let`s talk a little bit about the technical gauges that you use to come up with this analysis, for example, market sentiment. What are your gauges telling you about sentiment?
BARTELS: Sentiment right now is very bearish. We use sentiment as a contrarian indicator. We are seeing individual investors, the most bearish that they have been in several years. And we`re also starting to see professional investors come down in their bullishness. And one of the ratios that`s very common to use to measure sentiment is called the CBOE put to call ratio and we are seeing excessive put buying, which also tells us that there`s a lot of bearishness. And we also look at the VIX index where we get spikes in volatility. There seems to be now a lot of fear in the markets, so that`s why we think near term the markets may have the ability to bottom, trade sideways, rally, but then we would look for a secondary correction. Where --
GHARIB: What is your - and then what is your forecast by year-end, when between the sell off and the re-rally, what is your forecast for the end of the year?
BARTELS: It`s still possible that the market actually closes up on the year. We`re in what`s called the four year cycle or the congressional year. The markets typically do have an average of an 18 percent correction and the markets do close up on the year. So, we`re not looking for the markets to close down on the year. We`re just looking for the markets to have a normal correction. The markets have not had what we consider a normal correction since the bull leg started at the end of October of 2002.
GHARIB: We just have a minute left, but I would like to get your feedback on technical gauges and what they`re telling you about various industry groups, which industries are going well and which ones aren`t?
BARTELS: On a very long term basis, we still believe that commodities are on a long term secular bull market. The sectors that benefit are energy, industrials and materials, but when those sectors correct, you can see that takes the market down. That`s telling us that there`s market leadership. During a correction, we think the safest place for investors to be is cash. If you can`t go to cash, sectors that we would go to are the telecom space. We would look at utilities. Select consumer staples are also defensive. And some cases, we may also look at some healthcare, particularly the pharmaceuticals. GHARIB: All right, you have given us a lot of information and we really appreciate it. Thank you so much for coming on our program.
BARTELS: Thank you very much, Susie.
GHARIB: We`ve been speaking with Mary Ann Bartels, chief U.S. market strategist at Merrill Lynch.
