He added that the intermediate price patterns in the S&P 500 and an increasingly high Relative Strength Index (RSI) confirm his market top thesis, along with every contrarian’s favorite — extremely high bullish sentiment. Stocks are “overbought”, said Zimmerman and vulnerable to a major correction to the downside.

Zimmerman also dismisses the idea that another round of quantitative easing, or QE3 will come to the rescue of a weakening economy. “Never before has more hope been invested in central banks as saviors,” he writes, referring to the near manic obsession of the markets. He said this is misguided because the long-term trend is for less spending and less lending, which leads to a continuing downtrend in the velocity of money. Stimulus only works when people want to spend and banks want to lend. (Related Link: Quantitative Easing Explained.)

“Hope is not a strategy,” he wrote.