Tags: stocks | Zimmerman | support | levels

United-ICAP's Zimmerman: 'Bubbles Don't Correct, They Burst'

By    |   Wednesday, 16 April 2014 09:50 AM

Stocks are near major support levels, and if they break through, look out below, says Walter Zimmerman, chief market technician at United-ICAP, a technical advisory service.

He tells CNBC that 1,785 represents a "must-hold" level for the S&P 500 and 3,830 represents such a level for the Nasdaq Composite index.

Wednesday, the Standard & Poor's 500 index rose 19.33 points, or 1.1 percent, to 1,862.31.
The Dow Jones industrial average added 162.29 points, or 1 percent, to 16,424.85. The Nasdaq composite rose 52.06 points, or 1.3 percent, to 4,086.22.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

"We're getting very close to the must-hold, and every time this market has corrected itself since 2009 it's held the must-hold," Zimmerman explains. "The difference is if we now break the recent low, we will for the first time since this whole move began [suffer] a five-wave decline from the high.

"It's going to revive issues concerning sell in May and go away," he notes. "The market is looking very vulnerable."

Zimmerman cites three negative factors for stocks: high valuations, a surplus of bullish sentiment and record-high levels of margin debt.

"The risk is we could get quite a plunge into October. There's a lot of people thinking that would be healthy, that it would be an overdue correction," he adds. "Bubbles don't correct, they burst. That's what has me nervous."

So how should investors deal with this scenario? Short small-cap stocks, as the Russell 2000 index is now the most expensive on the planet, he suggests. The index had a trailing price-earnings ratio of 102 as of Friday, according to Birinyi Associates.

David Winters, manager of the $2.3 billion Wintergreen Advisers funds, has a different view. The recent drop in growth stocks shows the attractiveness of value stocks, he tells Yahoo.

As "the bloom has come off the rose [for the] most speculative securities," investors are "realizing you'd rather go for the steak than the sizzle," he argues. "We think there's a lot of steak out there that's available for big discounts. You can get filet mignon for chuck prices."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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Stocks are near major support levels, and if they break through, look out below, says Walter Zimmerman, chief market technician at United-ICAP, a technical advisory service.
stocks, Zimmerman, support, levels
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2014-50-16
Wednesday, 16 April 2014 09:50 AM
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