Tuesday, February 06, 2018

Market Correction or Bear

There is a huge difference between a market correction and a bear market. A proper correction reaches about 10% off the highs, while a bear market needs a 20% correction from the highs or more.

The correction was much needed, digesting the rate hike in the US and possibly another within the next 6 months. The rise and rise of ETFs as a sector of overall equities market seem to have exacerbated the correction as redemptions tend to have a "me-too" follow on effect. 

For me, I think its a much needed correction, not a bear market situation. There is still the massive injection of funds with the new repatriation laws affecting US companies bring back profits back from overseas. A lot will go into shares buybacks and some reinvestment in US. The flow on effects have not been fully discounted yet.

Plus, what are the alternatives for funds now? In spite of the rate hikes, interest rates are still benign. There are not many places to go.

I expect a swift rebound within the next two days.

1 comment:

bruno said...

The market was way overdue for a correction after such massive gains,since horndog Donald Trump was elected and the tax cuts for the top 1%.And with the market going parabolic for almost two weeks,if these parabolic spikes are not going to cause at least a few thousand points pullback,what might?

I think that this is more than a pullback.It was already in the 5th wave and topping before the parabolic actions,usually the last desperate buyers(fund managers) who missed out and margin call shorts.My money is on the big bear.

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