[There are a number of] potential pitfalls out there for the market but, right now, the behavior of the main catalysts for a major correction suggest that there continues to be more right than wrong with the market. [Let me explain.]
The above introductory comments are edited excerpts from an article by Tom Smith (FinancialSense.com) as originally posted on SeekingAlpha.com under the title The Catalysts For A Correction.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Smith goes on to say in further edited excerpts:
What are the catalysts for a major correction? The two most consistent drivers behind just about every major pullback we have experienced since the 1970s have been:
- inflation – energy prices – and
- policy – Fed tightening
so let’s look at the chances for those two issues to derail things this time.
Price of Crude Oil
If you chart the price of oil with the market you will consistently see a huge spike in year-over-year energy prices right before the pullback. That issue is not a concern at the moment. Oil prices are slightly down year-over-year.
The Fed has actually been injecting less money into the system since late last year. Ben Bernanke announced the beginning of the taper last year. The taper will likely come to an end around October. This news is out. It is rarely the devil you know that causes problems. Fed policy hasn’t changed in some time.
Leading Economic Indicators
The Leading Economic Indicators (LEIs) is another key area to monitor the overall direction of the market and give us valuable insight into the economy. Remember: the market is a leading indicator. The market itself gives us clues as to what the future holds for us. The LEIs took a breather early this year in the face if a frigid winter. The market did have a sharp correction in response to the slowdown. As the LEIs have improved since the spring, the market has continued its move higher. Frankly, I see nothing alarming in the long-term trend of the LEIs right now.
Source: dshort.com, annotations added
Consumer sentiment is also not in the euphoria stage. When everyone is certain the market will go up forever we all need to look out.
Quarterly earnings need to be strong and they currently are.
Those are the potential pitfalls out there for the market and, right now, there continues to be more right than wrong with the market. If things begin to deteriorate in any of the above areas then it will be time to be more cautious. [While] there are… many stocks…that are in their own private bear markets…the weight of the evidence remains in the bull camp for now.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://seekingalpha.com/article/2330665-the-catalysts-for-a-correction?ifp=0 (© 2014 Seeking Alpha)
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