The reason for this market correction is simply the high level of asset prices. Asset prices are simply too high because rents are taking too much of people's incomes, or interest payments too much of their incomes, and that is despite record low interest rates. People are forced to live 'expensive lives' in the city in order to 'have a job in the city'. The problem is most wealth is created and vested in the cities. The problem is that these centres of growth become over-capitalised when governments are able to restrict land development. They do this in order to keep local taxes high, and because landlords like the 'wealth effect' of rising property prices.
We can see that a short-term support is 16,500pts, however looking at the lowest chart, its possible we will be looking in a fall in the market to 14,000pts. That is a correction of 19%, or 13.67% from the start of 2014 (at 16220pts).
There is no compelling reason why the market should fall that much; not because the market is overpriced, but simply because there is nothing pulling it down. Interest rates are not rising. That augers well for the present. So I don't necessarily see this downside reaching 14,000pts because I'm going to wait for the market to tell me. The trick is to wait for the market's lack of confidence to be shaken out. It is fair to say that the central banks will look favorably upon a fall in asset prices - not just equities, but also housing. Housing markets are also softer in recent times. So let's see how much confidence is undermined. I frankly think these are good times. The problem is people are incredibly myopic. They tend to think markets evolve around their 'Western experience' and fail to see how Western market weakness (i.e. unemployment) is a boon to markets elsewhere. The money is flowing to the farthest corners of the world. It will collapse eventually, but we are a long way off that yet. The question is - how much of a fall is necessary to restore confidence in the short term. Rest assured that this fall is not going to spook consumers in emerging markets who don't own stocks, and who don't have so much wealth invested in their houses. They aren't going to be concerned because you might not be buying a new car, but you still need the underwear you make, and the people in their country are increasingly buying new 'branded' underwear, motor scooters and I-phones to impress their girl friends. Some of them are better off still doing your computer programming.
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