Following Nomura's Bob Janjuah's 'wine into water... are we there yet?' note in February, the market has followed his script almost perfectly with a continued push to new highs and a small sell-off that was bought excitedly. While he remains convinced that "in terms of positioning and sentiment, we are 'not there yet'," for his 50% S&P 500 plunge; he does believe Q2 will see a 5-10% dip to 1450 as the shambolic policy responses to Cyprus and the 'cat' that #DieselBoom 'let out the bag' add to increasingly weak global growth data. While this dip will also likely be bought, the bearded bear expects the market's comeuppance to arrive late 2013.
Via Bob Janjuah, Nomura,
1 - The 5% February sell-off I was looking for materialised in part. The expected dip in the S&P from 1515 to 1440ish ended up instead being a 3% dip from 1530 to 1485. Markets have, as I expected, subsequently bounced – the dip was ‘bought’ – taking the S&P well above my minimum 1515 target.
2 – As per my February note I think we are now beginning or very soon about to begin the next (slightly bigger) dip lower, of 5% to 10% over Q2, taking the S&P from the 1575/1550s down to the 1450/1475 zone that I have discussed at length in my last few notes. The shambolic policy responses to Cyprus, the weakness of the ‘post-Cyprus’ bounce, and the ‘cat’ that Dutch Finance Minister Dijsselbloem has ‘let out of the bag’ all add to my conviction, as does the poor global (esp. EM) growth data.
3 – Again, however, I remain convinced that, in terms of positioning and sentiment, we are ‘not there yet.’ Which means that I think this coming dip will also be bought and celebrated – another reason for positioning, sentiment and leverage to get to even more extremes. Also per my last note, I am fully expecting new all-time nominal highs in, for example, the S&P, into the 1600s, once it has its first weekly close above 1575. I think this should occur in Q3.
4 – Lastly, as per my last note, I remain as convinced as ever that the bullishness that will likely prevail at that time will come under extreme scrutiny and pressure over late 2013 and 2014. Global (esp. EM) growth will likely continue to disappoint, as we are faced with a possible (probable, in my view) transition from Ben Bernanke to someone else at the helm of the Fed, as the Japan story develops, and as the eurozone crisis continues to play out.
More on that in future notes. For now, on a tactical basis, I recommend getting short ‘risk’ at a (proxy) S&P level of 1550/1575, looking for a move down to 1450/1475, over late March and Q2. A consecutive weekly close above 1575 on the S&P is my stop loss.