10 March 2021.
What is a Correction?
According to Schwab.com, a correction is a declines by more than 10% (but less than 20%) from its most recent peak. Its called a correction because historically the drop often "corrects" and returns prices to their longer-term trend. Sustained period of correction could lead to a bear market.
Last night stock market saw a frenzy of buying. Nasdaq price rose 3.69%. Bitcoin is hitting its U$ 56k Level, Meme stocks like Gamestop rose 27% and AMC rose 13%.
Reason?
Analyst credited yesterdays gain due to a reduction in 10 year bond yield currently at 1.528 levels( down 4.13%)
In my opinion, yesterdays gain could be partially due to retail investors frenzy. Taking reference in Nasdaq and Dow Jones 5 year chart.
If we believe that a correction is to bring the price level back to the longer term trend, then base on charts, Dow jones price level can be considered in line. Where else, Nasdaq could still see more declines.
Recall yesterday i was sharing on the convergence of the K-Shape recovery. A simple graph above shows nasdaq and dow jones has not yet exactly converged.
Why i think there is still room for correction?
1. Feb 17 core retail sales figure was 5.9% vs analyst expectations of 1.1%. The month before it was -1.4%. (Retail sales represents a significant portion of US GDP)
2. This wednesday US will be declaring its inflation rate. All eyes on deck.
3. If inflation actual results is higher than expectations, i would expect bond yields to spike. Result: growth stocks to continue decline.
4. If yesterdays increase in stock prices was really due to a retail frenzy, then this would present an opportunity for institutions to clear their holdings and rotate to more old economy stocks.
Disclaimer: The above message is solely my opinion amd does not constitute any investment advice.
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