Another Market Correction Next Month?

Almost two weeks ago the major indices witnessed a sharp correction which we have since significantly recovered from. Let us explore this move before we forecast the if we are likely to see another deeper correction. The S & P 500 index lost approximately 10% from Wednesday 10th June to Monday 15th June. Currently the index is trading less than 3% away from 3230, representing the trading level before the drop.

The German DAX index within the same period suffered a 12% decline, trading below 11560. The index has staged a fast recovery, currently trading 12585 and also is trading less than 3% away from a full recovery. The FTSE has witnessed a movement almost identical to the S & P 500 index and lies just under 3% from recovery.

I favour a completion of this recovery which would take us back to 3230 on the S & P 500 index, just under 13,000 on the German DAX and 6,500 on the FTSE 100 index. After this recovery, the S & P 500 index would need to climb another 5% to signify a full recovery to pre-covid 19 levels. The German DAX would need to add another 6.5% and the FTSE lags dramatically requiring another 17% of upside.

It is too premature to decide whether we will see a continuation of this recovery to pre-covid levels but I favour another correction either after another 3% move up or more likely when we get back to pre-covid levels. This could be seen later next month at the earliest but for now the trend is clearly up. I would be buying into this rally but not in significant size. Furthermore, I would be ready for the possibility of another correction as alluded to so protect profitable longs at that point with stop losses and start to reduce long exposure. I will update the probability of a correction after this move is complete.

A few weeks ago, I wrote about Gold which is currently trading at 1757. I still favour a move up to 1800 within the next month or so. Buying dips works well with this commodity and accumulating a position by purchasing at sensible levels. Our Morning Note also provides a free intraday GOLD buy or sell signal, which yesterday resulted in a profit of 70 points. If you not already receiving this, you can email support@analystonlineuk.com requesting to be on the distribution list.

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