by Das Brain
The U.S stock market over the last 3 months have been on a tear, since the first China stock market scare, the stock market just keeps going up, only slowing slightly for a small break downwards here and there, then proceeding upwards. The upward momentum is so strong that the second China / Shanghai stock market correction of almost 7% didn’t even derail its strong momentum upwards.
Looking at the Dow Jones Industrial Average chart for the last 6 months you can see where the first China stock market decline affected the U.S stock market back in late February (red line). The U.S stock market has since become immune to downward moves in the China stock market. The most recent China corrections which was yesterday June 4th, had no real influence, and the one last week was met with more people buying stocks rallying the Dow and the S&P.
Even though the U.S ecomony is doing well given all the latest economic reports, I can’t help but feel that there is a sense of irrational exuberance in the U.S stock market. There is a small stock market bubble forming and the stock market is getting over extended. Don’t get me wrong, there are still individual stocks that may be bargains, however the majority of stocks have now ran so far up, and so fast that they are considered expensive by most means.
Take these few stocks for instance Apple (AAPL), CROX (CROX) and Amazon (AMZN). Some of these stocks have ran as much as 75%, very lofty gains in as little as 3 months and all three stocks are continuing to climb. If you got into these stocks at the beginning of March (green dot) and sold now, you would have made a great return on your investment.  However, currently these stocks are overheated.
What sort of scares me is the fact that even when bad news comes out, traders or possibly the retail investor out there are still buying and buying the stocks driving stock prices higher and higher. For these stocks that have accelerated too far too fast, investors that have recently bought in, might be in for a hurt when the stock market decides to correct.
As I am writing this post, the Dow Jones Industrial average index is down by 74 points, and on Bloomberg television a portfolio manager at Deutsche Bank says that he is taking some money off the table for stocks in his portfolio or reducing his holdings in stocks. Today, it seems like the stock market is taking a small breather, for a stock market correction to happen though the indexes has to fall more.
A correction will be coming soon, as you know the stock market never go straight up. Seasonal trends, points to generally sometime in the summer months (June, July or August) that the correction will happen. Don’t ask me which month as I think nobody can predict when the stock market correction will come, but when it does I think it is going to hard and fast… I’m guessing up to 10% or more. Trade cautiously in the next few months.
Please read my disclaimer. Don’t take my opinion as fact, do your due deligence.Â
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[...] Looking at the major U.S stock market indices right now, it is all red. Today makes the third day of declines for U.S stock markets. Funny, as I was writing my post 2 days ago about “when is the stock market will correct“, the market started to decline. [...]