Bearish On Stocks

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CNBC – S&P 500 Facing 25% Drop Before US Election: Janjuah
The S&P 500 is likely to fall by 20-25 percent over the next three months according to Nomura strategist Bob Janjuah. In a research note published on Tuesday, the long-term bear who called the recent rally for U.S. stocks said he expects investors to be back in risk-off mode until the U.S. election is over. “I now think the correct thing to do — as I also said in April and June — is to prepare for a serious risk-off phase between August and November…over the August to November period I am looking for the S&P 500 [.SPX 1413.17 — UNCH ] to trade off down from around 1400…by 20 to 25 percent…to trade at or below the lows of 2011.” Janjuah expects the dollar to be a big beneficiary if the S&P 500 does fall as sharply as he predicts. “This coming major risk-off phase will, in my view, also be very dollar bullish and bullish core government bonds,” said Janjuah, who thinks 10-year debt in the U.S., Germany and the U.K. could hit just one percent, and who is predicting more quantitative easing from the Federal Reserve in December. Those hoping for a big bazooka from the Fed or the European Central Bank before December will be disappointed, he said.

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 Source: All charts Bianco Research

MarketWatch.com – May-June correction was a failure
Surprised by the Dow’s continued inability to close above its early-May highs? You’re not alone: Tuesday was the 11th day in a row in which the Dow was less than a percentage point away from eclipsing its May 1 closing high of 13,279. And it was the 11th day in a row in which it failed. Contrarians, however, have not been surprised by the Dow’s difficulties. For a number of weeks now, contrarian analysis has suggested that the rally is living on borrowed time. (Read my Aug. 8 column. ) And recent developments have only reinforced the contrarians’ concern. Consider the average recommended stock market exposure among a subset of short-term stock market timers (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). On Tuesday, when the Dow Jones Industrial Average DJIA -0.51% rose above its early-May high on an intra-day basis but ended up closing well below it, this average stood at 53.1%. On May 1, in contrast, the day on which the Dow closed at what so far has been its bull market high, the HSNSI stood at 42.1%. This 11-percentage-point difference is one measure of how much more optimism there is today than at the May market peak. And contrarians do not consider excessive optimism to be a good sign.

Business Insider – RICHARD RUSSELL: ‘Something Evil And Bearish Is Bubbling In The Guts Of This Market’
Richard Russell, author of the Dow Theory Letters, is just as bearish as ever. In his latest commentary on King World News, Russell talks about the the sell-off we saw in the stock markets today. I’ve dealt with a lot of strange and difficult markets over the last half/century, but this one may deserve a prize. Today, instead of rallying above its May 1st peak, the D-J Industrial Average sold off an hour before the close. The sell-off left the Dow around 70 points below its May 1st peak.

Comment
On Monday we asked, “Are stocks climbing a wall of worry?“  We concluded with:

Stock market bulls would like to believe raging bearishness is enabling stocks to climb a wall of worry. Unfortunately this just isn’t the case.

For more information on this institutional research, please contact:

Max Konzelman
max.konzelman@arborresearch.com
800-606-1872