Correct me if I'm wrong.......

It looks like the market is in correction mode and the market sentiment has changed dramatically over the course of the last couple of weeks, and we are heading lower. The recent sell off has not experienced any significant level of buying and traders look to be taking money off the table as we move lower. It is important to note that we came a long way during the first 5 months of this year, and the longer the market the continues to move lower the more money we will expect to see been taken out of the equity market.

The market seems to be following on from what happens overnight in Asia/Japan, and this follow through is beginning to hurt both the US and European equity markets. There are a combination of factors that have triggered this recent move to the down side;

1. The economic climate in Japan has changed, and with the significant swings experienced in the Nikkei over the last couple of weeks there seems to be a consensus that the monetary easing policy adopted by the BOJ may be showing signs of failure.
2. There has been recent remarks from the FED that we could see their level of QE reducing coming into the Q3/Q4 of this year. The market has been living off this aggressive policy and investors fear that the market will not be able to cope without this assistance.
3. As mentioned previously the market has come a long way in a relatively short period of time and it looks as though the 'Bears' and beginning to enter the market and the 'Bulls' are not supporting this move any longer.
4. The market dynamic has changed and traders/ investors need to be able to adapt to this change and alter trading strategies accordingly. The 'Buy the dips' mentality no longer exists and we have seen no support in recent weeks to the move lower, which we have experienced over the last months.
5. We have again been shown that the market is too highly dependent on monetary easing and government support. We have been noting the correlation between stock market prices and QE over the last few months, and it looks like we have been spot on. The levels of QE have driven the market higher but the underlying fundamentals remain weak. We now have a global economy with more liquidity and higher stock prices but economic data continues to show weakness.

We expect to see this move continue over the coming weeks and we will wait to see if the equity markets can find some support. We are looking at specific levels (SPX 1500, DOW 14500). Just to note that if we seen this correction continue we could see a significant move into the defensive asset classes such as Gold, Silver, and Bonds.

Happy Trading

@lowkeycapital