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Many conflicts around the world’s speculators, analyzers and traders, on what direction will the stock markets follow in the next few months. Many of them predict a very big drop compare to the 2009 financial crisis others they expect over performing. When I hear them I simply close my ears not to listen to any one. In my point of view, I don’t see any serious thread resulting to the collapse of stock markets. The resent drop in stock markets is a technical result repeating all over the years. We have reached and topped Markets highs last month so it was expected that rally will have an end some where. Also investors do not want any more to keep any stocks after they had already received their dividends. So most of them prefer to cash out their expensive stocks in order to buy them at a better price in order to secure next dividend period. Something that many traders do not take into account is the annual growth given by the government institutions and central banks. Something around 2-3% per year. Lets take an example of the Dow jones index: beginning of the year 2016 Dow jones stand at 17200 so generally speaking adding a growth of 3% the DJI will end year around 17 700. On the 20th April DJI was 18140 or 5.5% above beginning of the year, it does not means that something happen around the world and we have such a big growth; no , it was overbought because of the dividend period. Today we are standing at 17500 or 2% above beginning of the year. This give us the result of a further drop of 5-6% (DJI 16600) as a correction phase before markets will start to retreat their gains back to 17700-1800 by year end. Consider:
- Hedge funds are at their lowest net long position in four years, at 44 percent, after hitting a record long of 57 percent in early 2015, according to Goldman Sachs.
- Money is draining again from equity funds after a period of reversal. Equity-based funds (both mutual and exchange traded) have seen outflows approaching $100 billion in 2016, according to Bank of America Merrill Lynch.
- The outflows come at a time when the retail crowd is feeling the heat as well. Bullish sentiment dropped to 19.3 percent in this week's American Association of Individual Investors survey, its lowest level since mid-February and only the ninth time since 1990 that optimism fell below the 20 percent mark.
- A combination of unease over the path of central bank policy both in the U.S. and abroad, the possibility of a destabilizing British exit from the European Union, and tepid economic growth have investors unwilling to commit new cash to a market that appears at least somewhat overvalued.