Stock markets ripe for a correction, but…
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August 19th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town
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I am on the road today tending to a few business matters - in an environment in which South Africa has just seen its third consecutive quarter of negative GDP growth - and the mood is not entirely upbeat.
Back to the yin and yang of equities: I have tried arguing over the past week or two that global stock markets were grossly overbought and out of kilter with economic reality, and therefore ripe for correction - a process I believe has now commenced (also for commodities, and the reverse for safe-haven assets such as government bonds, the US dollar and the Japanese yen). I have also mentioned that we may see at least some degree of reversion to the 200-day moving averages in a number of instances.
It is perhaps premature to say whether we will be dealing with a normal short-term correction or a more significant move threatening the primary trend. However, when considering longer-term data, it would seem that any correction may still be part of an overall bottoming-out process. The chart below shows monthly intervals for the S&P 500 Index since 1998 and conveys an important message when considering the three momentum-type oscillators at the bottom (RSI, MACD and ROC). These are reversing course for the first time since the primary sell signals of 2007 and now either indicate buy signals (or are getting close to them in the case of MACD).
Source: StockCharts.com
I need to be off to my appointments, but thought I would just share this thought with you while we remain cautious and await Mr Market to offer us stocks - especially in high-growth markets such as China, India and resource-based economies - at more realistic levels.
Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.
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Tags: Business Matters, Chart Below Shows, Commodities, Consecutive Quarter, Dollar And The Japanese Yen, Economic Reality, Emerging Markets, GDP, GDP Growth, Global Stock Markets, Government Bonds, Growth Markets, India, Intervals, Kilter, Macd, Moving Averages, Oscillators, Realistic Levels, Reversion, Safe Haven, Yin And YangPosted in Commodities, Emerging Markets, India, Markets |
