Europe Economy

Charts: Stock Rally Entering 'Irrational Exuberance'


The recent rally in stocks has lost momentum and investors should bail out now or face a summer of sharp declines, Robin Griffiths, technical strategist from Cazenove Capital, told CNBC Monday.

Charts: Stock Rally Getting 'Irrational'

"We're on borrowed time (for) people wanting it to run much further now and we're entering the irrational exuberance level," Griffiths said.

Many investors still hold to the traditional strategy of 'sell in May and go away,' but Griffiths thinks that this year could bring declines earlier than usual.

- Watch the full interview with Robin Griffiths above.

"In America we're already in the new tax year so the retirement accounts have already been topped up," he said.

Meanwhile, President Obama's "agenda for bringing Wall Street to heel," will drag on stocks, according to Griffiths.

Stocks in the UK won't  fare any better and the FTSE-100 faces  a  correction of between 10 and 15 percent, Griffiths said.

"This isn't going to signal a crash or anything like that, but I think it will signal a significant dip to an important buying low in October," he said.

"In a normal year, the seasonal strength would last through until late May, but with the election coming where it is, it doesn't look as if it's going to last until the end of May," he added.

The UK election is scheduled for May 6 with many opinion polls indicating a hung parliament while would likely lead to a coalition government.

Griffiths expects an initial fall of between 8 and 10 percent for the UK stock index, then a mid-summer of about 3 to 5 percent, and then the rest of the fall.

"The total fall to October's low should be in the range of 10 to 15 percent. And then I think it will come back up again in the last part of the year and as we enter 2011 it will be round about current levels again," he said.

Kevin Gardiner, head of investment strategy EMEA from Barclays Wealth, thinks the outlook for UK stocks is positive, however.

"We do quite like UK equities and we're not at all put off by the currency," Gardiner said. "In some ways their structural growth potential actually has little to do with what's going on in the UK economy."