Wall Street: Why You Should Fear the Next Correction

Wall Street

“Corrections are normal at Wall Street, nothing to worry about” this seems to be the view on US equity market offered by most traders at the moment, but we do not exactly expect the next correction to be any similar to what we have seen in the last decades


(original publishing date: 06/09/14)

All you need to know about the next stock trend reversal is that it will be a big fall.

The problem is that, as always, it’s hard to say exactly when the correction will come, we just know it will (and this is scary enough).

Zero Hedge shared a chart that should make you think:

There is, usually, a specific relationship between bonds and stocks.
In “Risk On” moments, traders prefer investing on stocks (that, by definition, are more “risky” and, therefore, have a major premium for such risk), in “Risk Off” moments, it’s preferable to invest in bonds to “limit” the risk of loss.

But now there seems to be a total disconnection among the two markets: the market has gone nuts since the end of 2011, and we’re going to pay a big price for this.

Remember: the red and the blue line will go back to their natural equilibrium, it’s only a matter of time.



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