Kevin Scully: "It's still looking like a correction and not a sell off or collapse"

This article by Kevin Scully (left), executive chairman of NRA Capital, was recently published on www.nracapital.com and is republished with permission.

STOCK MARKETS around the world have been falling since October 7 or 8, 2014. The Dow has shed 3.9% to 16321 while the Hang Seng has fallen 1.3% and our own FSSTI has dropped 1.5%.

In a radio interview yesterday I was asked what I felt about the "SELL OFF" - I corrected the interviewer by saying its not a SELL OFF but a long overdue correction.

Don't forget that stock markets have been in a BULL market since 2009 and a meaningful correction has been long overdue.

The VIX index which is a good indicator of uncertainty and volatility has risen and closed at 24.6 overnight.

In my latest talk at a Lim & Tan seminar about Defensive Strategies - I highlighted a number of risk factors and also told investors of a number of indicators to look out for that would trigger a correction. One of these was the VIX index and I said that once it crossed 20 - we should be alert and once it crossed 30 that would be quite negative.

Vix10.14

VIX chart: Bloomberg.

I don’t know what caused the recent weakness in stock markets which happened to start around Oct 7 or 8 which ironically happens to be the date of the second Blood Moon in the Tetrad (see my recent presentation slides).

Back to fundamentals, the weakness seems to be a series of events:
a) weaker than expected August 2014 Industrial production numbers from Germany which suggests that the EU's economic recovery is weak.
b) mixed US economic data which prompted the FED to indicate that the FED funds rate would be low
c) mixed economic data from China
d) lowering of Global GDP growth rates by the IMF and its warnings that unusually low interest rates could cause overheating in the OECD economies
e) sudden weakness in commodity prices including crude oil f) flight to safe assets - US Treasuries which saw the 10 Year Treasury Yields fall instead of rise (the latter was expected with the end of QE3).

No need to panic. I expect further market weakness which is part of a long overdue healthy correction for now.

As in my recent presentation, I think investors should be defensive and use this weakness to accumulate defensive stocks which I have highlighted in my Lim & Tan presentation.

Recent story: @ NRA seminar: Kevin Scully, Song Seng Wun, China Aviation Oil, MTQ, Jason Marine, Kim Heng Offshore

Kevin Scully: "It's still looking like a correction and not a sell off or collapse"

You may also be interested in: