U.S. Stocks at Risk for 20 Percent Decline: Technical Analysis

The U.S. stocks rally is “maturing” and the risk of a 20 percent retreat in the Standard & Poor’s 500 Index increased after sellers became more aggressive than buyers, Bank of America said.

Mary Ann Bartels, an analyst at Bank of America, said her volume intensity model, used to capture the market’s money flows, showed investor buying peaked last week and selling gained strength. That’s signaling the 50 percent rally in the S&P 500 from a 12-year low on March 9 may be near an end, she said. Technical analysts study chart patterns to predict prices.

Selling pressure was the third of five indicators watched by Bartels to signal increased probability of a 15 percent to 20 percent “correction” in the benchmark for American equity, she said. Two others were triggered last month when China’s Shanghai Composite Index began a 16 percent slump and Investors Intelligence said bearish sentiment among newsletter writers shrank to less than 20 percent. (more)