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Equity Markets are Overextended So a Correction is Likely Soon

From the political crisis in Italy, to higher oil prices, concerns about North Korea, and even to some questions about the Fed hike trajectory, the world seems to be in disarray with new shocks and triggers awaiting around every corner.

Italy`s anti-establishment party is giving up on forming a coalition government and the third largest economy in the euro-zone is in turmoil. One leader even mentioned on television that the current crisis has alarmed investors and savers in Italy and Europe.

North Korea has seemed to run into a wall now, as the regime has not come to grips that the old Kim family playbook will not work in the new Trump world. Combine these issues with higher oil prices and Fed policy going forward, and you have an overextended equity market that might come under pressure.

So are equity markets poised for a sudden move lower – we think the answer is yes.

There are other reasons for a breakdown in the Dow, S&P 500 as they could lead global equity market lower. This will likely be, according to our estimates, a healthy and much needed reversal in a secular rally.

We do not give trading advice but do look closely at signals as fundamentals adjust ever 3 to 6 months. We see an adjustment now. So we like being light on equity.

Team Classiarius

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