Photo: The Globe and Mail
One of the more bearish strategists out there has been Nomura’s Bob Janjuah.Back in April, he laid out a roadmap for stocks, which assumed a mid-year rally before a major collapse.
In his July note, he reminded us that his call was unfolding. And he does so again in his note today:
“In terms of markets, the route map I set out in early April and which I affirmed in early June continues to play out extremely well. After correctly calling the late March/early April 1420 high in the S&P500, and also the early June (1270) low, we have also now fully captured the risk-on rally in stocks and credit that began in early June…”
So, what’s next?
Well, this is when things start to get ugly.
“I now think the correct thing to do – as I also said in April and June – is to prepare for a serious risk-off phase between August and November,” he reiterated. “Over the August to November period I am looking for the S&P500 to trade off down from around 1400…by 20% to 25%…to trade at or below the lows of 2011.”
He argues that the key drivers of this sell-off will be disappointment at next week’s Federal Reserve Jackson Hole speech and realisation that the ECB won’t be be able to deliver on their promises.
In his note — titled Time For Action, Warning Over — Janjuah writes that the beginning of the big sell-off is imminent: “While in the extreme short term – days – we think more risk on is possible, we now feel comfortable in flipping from risk on to risk off and positioning for this major risk-off phase.”
However, he does hedge himself a bit:
“Just in case something genuinely new and unusual is happening – we note that the risk-on phase has extended for a few more days than we had originally forecast – and in the interests of prudence, my stop loss on the risk-off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450.”