Market timers are too bullish about the outcome of the war - and May marks the start of the worst six-month stretch for markets historically

The U.S. stock-market correction has more downside ahead, according to contrarian analysts. That's because the mood on Wall Street in March and early April hasn't been pessimistic enough to trigger a contrarian buy signal.

Instead, short-term stock-market timers have remained relatively bullish during the Iran war that began on Feb. 28. And after a two-week cease-fire was announced, market-timers stayed bullish.

This is particularly evident among timers who focus on the Nasdaq stock market. The Nasdaq Composite Index in March fell by more than either the S&P 500 or the Dow Jones Industrial Average, dropping into semiofficial correction territory by declining by more than 10% from its February high. And because the Nasdaq market is highly sensitive to changes in investor sentiment, we would have expected that Nasdaq-oriented market timers would have become quite gloomy.

But they didn't. So there was no contrarian buy signal - defined as timers being more pessimistic than on at least 90% of prior trading sessions. This zone of extreme pessimism is denoted by the shaded area at the bottom of the chart above. Not only did this buy signal fail, the timers' average recommended equity exposure actually increased after the huge rally on April 8 - rising to almost precisely the midpoint of its historical distribution and higher than 46% of all other daily readings since 2000.

This quick jump is particularly revealing - and worrisome. A hallmark of tradable market bottoms is that the initial rally off those bottoms is met with widespread skepticism. That skepticism represents the so-called wall of worry that the ensuing rally can climb. The market timers' eagerness to instead believe that the worst is over is more reminiscent of the "slope of hope" that markets slide down.

If the stock market follows the contrarian script, the correction's low won't come until my firm's Hulbert Nasdaq Newsletter Sentiment Index drops into the shaded zone at the bottom of the chart above, and subsequent rallies encounter stubborn bearishness.

Contrarians typically don't hazard a guess as to when those preconditions will be met, preferring instead to let the markets tell the story in real time. But seasonal factors suggest that the bottom could be several months away: On average, historically, the six-month period beginning May 1 is a poor one for the stock market during midterm U.S. election years.