With Morgan Stanley, JPM, BofA and even Goldman Sachs having thrown in the towel on the ongoing stock market ramp, inspired in equal part by HFT momentum strategies, central banks, and a relentless short squeeze, Deutsche Bank’s equity strategist, who until now valiantly was cheerleading to bullish case, has finally waved the white flag of surrender and in an overnight note admits that “the next 5% move is likely lower.”
Here’s his rationale:
Dips of 5%+ from 6-month highs generally happen at least once a year, usually stay under 10% and don’t tend to last long. Sell-offs usually last 4-8 weeks; rallies 16-20 weeks. Only 3 years since 1960 didn’t have a 5%+ dip (1964, 1993, 1995), while many mid- to late-cycle years saw more than one dip (late 1980s and late 1990s). Of the 80 5%+ sell-offs since 1957, about 2/3rd were under 10% with an average sell-off of 7% and duration of 27 trading days. S&P troughed at 1829 on Feb 11th this year, after it last troughed at 1868 on Aug 25th, 2015 (rolling 6-month basis, trough-to-peak), giving us back-to-back 10%+ corrections. This stood in sharp contrast to 915 trading days or 3.9 yrs between the prior two corrections.
The punchline:
Given the recent rally and that two 5%+ sell-offs are likely in an election year, we now expect the next 5%+ move to be Down.
But fear not, because he adds that “our caution is short-term, and we reiterate our long-term targets of 2200 for 2016 (18.6x $118.50 EPS) and 2400 for 2017 (18.5x $130).”
One can only hope it is “short-term” enough for his employer not to need a bailout in the meantime.
via http://ift.tt/1ZLxdwq Tyler Durden