Uber Bear Sees S&P at 800...Just Not Yet

Bob Janjuah, the bearish contributing strategist at Nomura in London, has long predicted the S&P 500 index will head towards 800, a level not seen since the aftermath of the collapse of Lehman Brothers. With the S&P 500 closing on Monday at 1,456, Janjuah has been forced to review his timing.

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“My stop loss on my risk-off ‘short S&P 500’ trade, initiated on 21 August at an S&P 500 level of 1425, has been triggered,” said Janjuah in a research note in which he outlined why he is still a long-term bear.

“It was extremely informative to see that post the QE-infinity announcement, which drove the S&P above 1,450 on the day of the Fed action on 13 September, and after an opening high of 1,475 on 14 September, the S&P sold off and got down to a 1,450 low last week! And then — confirming that 1,450 was an important level, and is now a critical pivot point for the S&P — mutedly bullish price action on last Friday activated the stop loss," he wrote.

Given underlying concerns over growth, debt and policymakers' phlegmatic reaction to the debt crisis, Janjuah believes any upside from here will be limited to a 10 percent gain. He stands by his 800 call.

“Until and unless the S&P 500 index demonstrates a weekly close below 1,450, I believe it is premature to go aggressively short risk — tactically at least — at this precise moment,” said Janjuah, who believes that could happen with months, or even weeks.

“The important message now is to accept that, in my view, risk assets are in a bubble, which of course can extend, but which can reverse sharply and suddenly. Up here, ‘valuation metrics’ are not going to help much.” Janjuah believes 10 percent to 15 percent losses for equities could come in a “heartbeat.”