Expect Stock Market Correction upto 15% to 20%
Feb 26, 2014 S&P 500 closed today at 1845.16 which is just 13 points below from its annual high. S&P 500 is enjoying a rally since when the market bottomed on Mar 9, 2009 at 676.53.
The technical indicators for S&P 500 is given below:
200 days EMA: 1723.70
50 days EMA: 1811.16
21 days EMA: 1822.86
10 days EMA: 1833.86
The current level of S&P 500 at 1845.16 is around 7% above the 200 days EMA. Many times in the history, we have noticed that major market indices will move up to 10% more than 200 days EMA, and then it look for the direction. The maximum upside potential for S&P 500 is to touch 1895 or 1900. It is unlikely move beyond this level. In the last over 4 years, we have not seen any major correction in the stock market.
With the Fed decision on slowing down the bond purchases and increasing the interest rates will have strong negative impact on the US economy. Since Fed bailed out majority of the home owners living with negative home equity in the last over 4 - 5 years with its various stimulus programme. Now banks are in very good position eventhough people walk out from their home since most of the mortgages are in good shape.
Now Fed has no worry about your real estate market in the short term and also the correction is overdue. There is no doubt that the stock market will see major collapse in the coming months by pushing the dollar value up. There is no surprise if we can see USD to INR conversation rate making a double top of around 70 in the next couple of months.
Interesting the Gold prices will not come down since it has become out of favor for the last over one year. And when people are pulling the money out of the market, then can move their asset to safe heaven precious metals.
Currently it is a very good time to exit from the stock market and park your money in gold. If you are a long term investors, you can consider selling covered calls against your positions in the portfolio.