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Aug 09

The Market Today 8/7/15: Correction

Correction

Over the last few week’s, the market has been weak. The question that my client’s have been asking, are we in a correction? Right now, it is still too early to say. It sure has the feeling of one. the majority of stocks have been moving lower. The amount of stocks hitting 52 week low’s are soaring, and the stocks that have been hitting 52 week high’s, have been anemic. The amount of stocks that have been holding this market higher, are getting fewer and fewer. This is not a good sign. There is not much leadership. The biotech sector, which has led the market higher for quite some time, have broken down. This market reminds me of the way the market was in 1999. When the few stocks that were moving the market higher, wasn’t going higher anymore, the tech wreck ensued. Will we get the same reaction here? Very possible. With the release of the latest job’s report today, the market is preparing for the Fed to raise rates, beginning next month. Should this in fact occur, then a correction is very close. I, however, do not subscribe to this notion. I do not feel the Fed will be raising rates at all this year!! So, should the market move lower, I would be a buyer of the dip!

Correction: Stockscorrection

As you can tell by looking at the chart, there is support at the 2,063, and 2,044 levels(marked by the yellow lines). The market could easily bounce off of one of these important support levels, just as it has over the last few year’s!  Should the market break below the 2,044 level on a closing basis, then we may well be entering a correction! It has been several year’s since the market has seen a 10% pull back. I do not see a 10% pull back, unless the Fed were to begin raising rates next month. Besides the technical condition of the market being poor, other reason’s point to the market moving lower. First, the poor market breadth, or number of leading stocks moving higher, has been smaller and smaller. The bond market is saying that the Fed will not be raising rates next month. The futures market is saying the same thing. All this being said, I feel the pull back will be in the 5-7% range. Of course, should the Fed raise rates next month, then a 10% down move is likely.

Correction: Bonds

Last month, the key ten year bond rate came close to hitting 2.5%. As of today, it closed at 2.17%! If the Fed were to begin raising rates next month, I don’t see how the rate moving down to 2.17% could be possible. I see this rate moving down to the 1.85-2% level, before moving back to the upside. I believe that the Fed will not begin to raise rates at all this year. Should our economy continue to improve, and the global economic situation improves, then I see the Fed beginng this quest sometime in the late first quarter of 2016. This being said, I do not see the stock market entering into an official correction.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping protect their portfolio’s, during time’s of market correction!

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