Too Good to Be True….

The day of reckoning for the continued run up of the market has finally reared its head. Expected for a while by professional traders and those who can read the tealeaves, the possible correction that started today was a long time coming.   In case you missed it the Dow Industrial Average was down approximately 2.5% today or over 660 points to the negative.

Some on the street seemed to be caught with their pants down somewhat as there was increased selling as the downward push continued on the markets.   This seems counter intuitive as this pull back was easily predicted by market pundits.   Many market indicators have been showing that the upward momentum of the market has shown signs of weakness and the inevitable market sell off would come.   Now that people have all of a sudden woken up from their outsized increase in value the markets can correct to better resemble a fundamental model of where they should be based on the underlying companies.

One of the fundamental indicators is the yield on bonds that started increasing in the last week or so. Once that occurred it signaled the overall sentiment that the market could need to pull over and take a nap. As we have discussed in numerous articles before the need for a correction has been coming since the last one in June 2016.   As we are sure you would agree, indices cannot keep on rising without some turbulence.  Prices cannot go up indefinitely.

Investors should have been mindful when the ten-year note went higher than the previous high established over the past several years. Add that to the thirty-year bond yield moving up and it equals warning signs for the overall market.   It should also be noted that there is so much profit on the table with increased prices in most sectors that the more uncertainty there is from volatility the more investors will want to take money off the table.   There are record profits in the market that investors have been reluctant to take thus far.  Once the selling started profit taking was almost a forgone conclusion which again exacerbated the selling.

Add to all of this the amount of money going into mutual funds and ETFs that track this index or that one and it is hard to argue with the money flow. Which shows us that most investors have gotten nervous that we are in nosebleed territory on valuations in some issues and a larger scale correction is imminent.   Once the initial snowball of the market momentum gets going as you can see it has not ability to stop slowly.   We have all seen the market increase exponentially to the upside in the recent time. Now it is only logical to assume that what goes up can and must come down at some point. Almost always at the same or faster speed. Keeping with that trading mantra, valuations have hit an all time high as well as the growing sentiment that they may have overshot their comfort zone.

All in all, as we have stated numerous times a correction was inevitable.   We expect to see Europe and other major markets follow suit. The market moves may continue into Monday and soft-land at some numbers everyone is comfortable with.   Once the more panic based selling stops professional investors will target certain parts of the market for expansion and certain for correction.  Then certain sectors as well as the overall market will continue on from a new plateau.

If you didn’t get swatted by the market derailing, then you must have fallen off the crypto currency wheel. We have tried to warn about the wonderful world of crypto currency. As we have said in many articles previously Bitcoin was going to come off its highs and come back significantly.    Bitcoin that hit $19,340 on the upside in December of last year fell below $8,000.00. Those who were smart sold when it was high as it was inevitable for the currency to come down. Now United States regulators are subpoenaing many people in the industry as well as have issued a statement that they expect the currencies and the exchanges to abide by federal regulations.     We hate to say we told you so, but…………..

…More to come on the markets from The Ribotsky Institute…

Leave a Comment

Previous post:

Next post: