Analyst: S&P 500 Headed to 800!

Will the S&P 500 nose dive down to 800? Nomura International Plc.'s bearish co-head of cross-asset allocation strategy, Bob Janjuah, believes it will.

Janjuah was previously at Royal Bank of Scotland Group Plc. where he was the chief market strategist and co-head of the bank’s global macro strategy unit. He accurately predicted last year’s second-half retreat in U.S. stocks.

In spite of a small rally after QE3 was announced, he is sticking by his prediction. Underlying concerns about growth, debt and policymakers' inadequate reaction to the debt crisis, Janjuah believes any potential upside will be limited to a 10% gain.

In his own words: “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.”

According to Janjuah, a massive downward correction could happen within a couple months, or even weeks. A quick 10% to 15% downward correction could almost instantly happen.

“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 said.

Back in February, Janjuah wrote a detailed article outlining his long-term views on markets and the heavy-handed political manipulation of the global economic climate. Perhaps the most interesting prediction it contained was for gold:

“I will continue to use the Dow/Gold charts to guide me going forward. The USD price of an ounce of gold and the Dow will, I believe, converge at/around 1, at some point over the next 2 years or so. I have extremely high conviction on this. What I am not sure on is whether we converge at 7000+/-, or at 14000+/-.”

In either scenario, gold has a ton of upside potential. Even at the historical mean of 4:1, we should be seeing either the Dow Jones Industrial Average around 7,000 or gold prices around $3,355.

Time will tell if Janjuah is right and the market crashes, but if the Dow/ Gold ratio hits 1:1, gold has a long upward climb ahead.

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