May 17, 2014

4 Possible Macroeconomic Signals of a Market Correction

In March 2012, I took a defensive position, the stock market went on to correct 10 percent two months later.

In March 2013, I moved most of the position out of Asia and took a sizable position in cash, the Asian Markets crashed more than 10 percent in May 2013.

Many people were asking me what are some of the Macroeconomic indicators that I look out for to judge when the stock markets are ripe for a correction. I think the current environment we are in will make a very interesting case studies. Let's look at some of the signals and clues that the markets are flashing right now. 

 VIX: The Greed & Fear Indicator

VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period.

In summary, the lower VIX is, the more complacent traders are. The higher the VIX is, the more fearful traders are. In the past few years, major market corrections are always proceeded by VIX index falling to 12 points. The last time it happened, global markets corrected almost 10% in Jan. However, the correction was short lived and the stock markets have been trending sideways since than. It is until recently, the VIX index hit 12 again....

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