Mary Ann Bartels, technician at BofA/ML, is out with her 2013 outlook. Although she is still bullish equities going into early next year, she points to three reasons why there is a risk of a bear market in excess of a 20% decline beginning in 2013.
The first is the divergence in the advance/decline line. While the S&P500 has made new price highs, the advance/decline line for both the S&P500 and NYSE has remained flat:
Her next concern is the Presidential Cycle. The month of February after an election is often down sharply, on average by 2.3%. Based on historical trends, the post-election year is usually the weakest period of the four-year presidential cycle:
And finally, the shelf life of a 20%+ bull market in stocks is usually about 2.5 years. If you consider how far we’ve come off the 2009 lows, 2013 would mark four years of this expansion in the stock market. So she thinks that it’s about time for a change in direction.
Personally, I can’t say that I disagree with most of this stuff. The Presidential Cycle is definitely leaning in the direction of the bears. The A/D line, however, can still confirm the new price highs. But this rocking bull market is going on four years. Can you count the 2011 correction as a valid interruption of that main trend? Not sure. We did make fresh highs less than a year later. So to her point, we’ve probably been in a bull market for too long. Time for a change?