Here is a brief update on the market. We are currently undergoing a good scale correction with most of the markets correcting between 5-8%. I mention in my last update that a correction is near and I will only throw in the rest of the funds when there is a significant correction of 10% or more. We are close to that point where based on a technical analysis point of view, we are reaching a key support level. Once that level is breeched. We will see major markets correcting at least 15%. STI will be expected to go below 2700 when that happens. There are 2 theories going ard the market rite now. The first is that this is a overextended correction after the market ran up 50-100% from the march low and need to correct and than continue it upwards trend. This scenario is in accordance to the 2003 recovery when there is a big correction before on the way up. (Refer to pic below)
The second theory is that this is the start of the W shape recovery where we are going for the next drop. Some economists attribute it to the persistently high unemployment rate in US which lead to a prolonged period of diminished consumer spending, which is the main driver of global growth. In my opinion, the second scenario remains unlikely as the environment is not as uncertain and chaotic as what we had seen before. Market thrives on security and right now, we do have some form of stability.
My call will still be on nations that has large domestic market which includes the BRIC economy and possibly, Indonesia too. The commodities market will be quiet for a while and will more or less correct along with the equities market. If the market situation detoriate further, I will switch in the rest of the bonds to equities and take advantage of this dip and position for the next economic boom.
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