Is A Market Correction A Foregone Conclusion?

1 Aug

The markets last week did not start optimistically but they sure ended that way. The last two days may actually have been a little too bullish- the jump between Wednesday’s and Friday’s close was enough to convert a weekly decline into a weekly gain. I expect that the big surge may be inviting profit-takers and day-traders to bail out while they can, since stocks didn’t leave themselves any likely room to keep rolling immediately.

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Economic Calendar

Last week was pretty light in terms of economic data. This week has several key events – economic data.

Last week key data :-

  • New homes sales and pending home sales fell
  • Durable orders overall were up due to increases in autos; otherwise durable orders actually fell
  • US Q2 2012’s GDP growth was weaker than Q1 2012 but above forecast

Information sourced from Forbes 23.07.2012 – 31.07.2012

Economic Calendar This Week

On Tuesday

1.  Personal income and personal spending – majority of analysts are expecting this to be higher for June

2.  Case-Shiller (home price) index: Analysts forecast a 1.8% dip, compared to a 1.9% dip in May.

3.  Home-sales expected to increase

4.  Consumer confidence expected to fall marginally

On Wednesday

1.  US payrolls 

2.  Car sales


1.  Factory orders – forecasted to increase


1.  Update on the jobs/unemployment – US’s official job-growth number,

Stock Markets

The positive volumes in the last two days of last week was the most volume we’ve seen, either good or bad, since the March to June plunge… the plunge that ultimately became a capitulation and the beginning of the current rally.

The fear being this history will repeat again – or even worse the panic similar to August 2011. The similarity is, last week’s rally was irrational and may be the forerunner of a ‘blowoff’ top, or the end of a big rally.


So is a pullback is a foregone conclusion?  

No, I’m not saying that. Although a pullback is a likely scenario. There is highly unlikely that would-be profit-takers and possibly short-term traders will pass on the bird-in-the-hand concept.

My ‘guess’ is a healthy short-term retreat – not to worry we have positioned portfolios focused on yield, strong cashflows and diversification. This is expected to and has previously cushioned this market volatility.

The bigger overall trend is still bullish, negative sentiment is high (so the likelihood of market panic is lesser (already priced in to some extent), and eventually the market will hit a technical ceilings and move above them rather than be restricted by them.  

2012 Q2 Earnings Results So far

The picture is still blurry, but with over 50% of the S&P 500’s companies having reported, the picture’s a little clearer than it was.

Currently, the S&P 500’s expected earnings for 2012 Q2 is higher than for 2012 Q1.  

Of the 282 companies who have issued their results – 186 have topped estimates, 61 have missed estimates and 35 came in on target. I am not disappointed with these results

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