The stock market rally we have experienced since hitting the lows in March is over and stocks could retest those lows in the future as further problems loom for the financial sector, Chris Locke, managing director at Oystertrade.com Management, said Wednesday.
"For now I think the rally is over. Whether we're going to do work at lower levels or this is a very important high … remains to be seen," Locke said.
"The cycle that was evident that marked up the lows early March is now evident as coming in as a high here. So I'd expect that we see a test of the lower levels where the 50-day moving average comes in around 976 (S&P 500 index) and the 200 exponential average comes in around the 954 level and I would expect a test of this."
"So I'm looking for a weak September/October," he added.
The reason for this pessimistic outlook is that Locke sees further turmoil coming out of the financial sector, with the worst coming mid-way through next year.
"My actual view is that we have further problems next year. The worst of these cycles, for me, come through in the middle of 2010. So in terms of what I would consider to be bad financial news, 2010 should be worse for me than 2008/9," he said. "So I'm actually reading it as a market that could easily come back to test the bear market lows."
"In terms of financial news and cycles, I don't expect the worst to be until the middle part of next year," he added.
The yen is a risk-averse currency trade, according to Locke.
"I think sterling will be one of the weakest and the yen will be the strongest. We may actually see the dollar improve at levels from here if stock markets come down," he told "Squawk Box Europe."
A move under 146 yen for the Sterling/yen cross will signal that the cross is heading back to levels below 140 yen, possibly even 130 yen, Locke said. He expects to see the yen beating the dollar on upward moves.
For oil, any move under $65 a barrel will be the signal that crude is moving to $60 and below, according to Locke.
"For me, I see crude oil stopping here, at least for the coming month to two months," Locke said.