China to Fall 25%, Taking Down S&P, Dow: Charts
The Chinese market is likely to fall 25 percent, taking U.S. stocks with it, with the S&P 500 possibly falling below 800, Robin Griffiths, technical strategist at Cazenove Capital, said Monday. But then U.S. indexes will rise again for a substantial amount of time.
China has been the "strongest market on the planet," Griffiths said. It bottomed in October last year and went more or less straight up, he added.
But last week, the Shanghai Composite fell back 8 percent as the tepid reception for the world's largest initial public offering of China State Construction Engineering caused a selloff in the Asian market. Concerns that the region's banks might begin tightening lending also hit shares.
"Anything that's just gone up 100 percent, for no other reason than that, you're bound to see some profit taking," Griffiths told CNBC. "So the label I apply to China is it is in a cyclical bull market in a secular uptrend. It doesn't get any better than that."
For the Chinese market, the top is in for the time being, and it have a pullback in its bull market, possibly of 25 percent, he said. This pullback will be reflected in the US market as well, he added.
The Dow and the S&P 500 index are likely to run out of seasonal steam this month and dip in October, he said, adding that the S&P 500 will drop to below 800.
Griffiths then said the U.S. stock market will enter the "strong six months of the year" where the rally could run up into spring of next year and that could take the S&P up to 1,250.
For the short term, Griffiths likes U.S. home builder NVR , saying: "It is unequivocally clear this one is going up now." D.R. Horton and Toll Brothers are also likely to gain as Griffiths told CNBC the latest Case-Schiller numbers were "good news" and that the U.S. housing market is "landing."
"I would caveat though that the longer-term secular trend in property is likely to be negative and persistently negative for a long time," he said.
From an economic perspective, Griffiths doesn't see oil trading up "dynamically" in the longer term, but rather in a "bumper-long sideways trading range."