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From Mr Dash,

Is there a looming correction? I have four very different thoughts.

People are always trying to predict the next short-term market move. While someone is always right, the allegedly great records are either back-tested or focus on a few highlighted calls. Before falling for this I urge readers to check out my post, The Seduction of Market Timing.

For short term reversals, or the change in trend, COT data is the best ‘indicator’ out there.

The fund flow shift has merely started! Those claiming that the individual investor is buying the market top need to look more carefully at the data. We have had nearly $400 billion in outflows from stock funds during the current bull market. The reverse shift so far is less than $20 billion. It is too soon to call this “dumb money.”

I would agree here. See also Ray Dalio’s take on it. Cash has earned too low a return, close to zero nominally, probably less than zero in real terms. It is moving back into stocks which it has to be said have been manipulated higher via QE. That is the big fear, QE suddenly revoked, or, stops ‘working’.

Felix is still positive. It is true that our Felix model does not try to predict corrections, but he is not far behind when things change. Markets that are theoretically overbought can stay that way for some time. There are a few pundits and managers who have been predicting a correction constantly for several years.

I cannot comment on Felix.

The facts have changed. It was only a month ago that many (most?) thought we would go over the fiscal cliff, leading to a recession and a crash in corporate earnings. They also thought that the U.S. might default on debt. These things did not happen, nor did we enter a year-end recession. Isn’t that worth six percent or so in market value?

There is always some political/economic crisis somewhere that you can point to. Some eventuate, some don’t.

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