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How Deep Will The Correction Be?

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by Gavin in Uncategorized
June 21, 2013 0 comments

It’s been a tough week for some in the market with the bears finally appearing after it seemed they were going to go into hibernation for the entire year. Yes, it’s true – Stocks can go down as well! Amazing!

All the key indexes broke below their 50 day moving averages this week, so the question has to be asked, how far are stocks going to fall?

Personally, I think we are due for a small bounce for maybe a day or two and then we will head lower. The 200 day moving averages have not been tested since mid-April so that could be a likely target.

For some thoughts on the markets, let’s listen to some experts – Mark Arbeter from S&P Capital IQ and Carter Worth from Oppenheimer.

In this video, Arbeter talks about the level of margin debt in relation to past tops in the market. The argument being that when individuals start to take on excessive risk by borrowing to invest, it can indicate the market is getting a little over-exuberant. So far it seems we are not quite there yet, but this is definitely something to keep an eye on over the next 6-12 months.

Interest rates have been in the news a lot lately, particularly this week with the Fed indicating it is getting ready to “take the foot off the gas”. They’re not “applying the brakes” yet, but just slowing the rate of acceleration. Was I the only one that found the car analogies a little ridiculous?? Let’s see what Arbeter shares his thoughts on Treasury yields.

Carter Worth was on CNBC this week to give us his thoughts on how far this correction might run. He says that “Once you’re down more than 5 percent, history shows you don’t stop there. You typically go down quite a bit more. Back to 1927 there have been 205 corrections of more 5-plus percent. The median decline was 18.3 percent and the mean was 12.2 percent. So, we’re down now 6.2 percent, which is much shallower than both the median or the median.”

Watch the video here.

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