Rising risk aversion, a surging U.S. dollar, historical seasonal weakness and a climb in bonds could send the S&P 500 down as much as 21 percent from Friday’s close, according to Mary Ann Bartels, Bank of America Merrill Lynch’s technical research analyst.
The 2-year Treasury yield could drop to zero, Bartels added.
“Unfortunately, nothing in our work suggests that the market is improving,” Bartels wrote in a report today. “More importantly, we are more concerned now that the downside risk could be more than we originally forecast.”
“September historically is the worst performing month in the year, while October traditionally marks important market bottoms.”
The S&P 500 is already down 15 percent from its bull market high hit at the start of May. Bartels believes that the benchmark will retest the 1100-1020 area and if it fails there, then look out below. She gets her target in the 900s using a combination of commonly-used factors, most notably a 61.8 percent Fibonacci retracement of the March 2009 to May 2011 rally.
Bartels ranked third among technical analysts in Institutional Investor’s 2010 survey.
