A Significant Correction Has Begun

Stocks have been overbought since late Feb 2012. Finally, we have a confirmation that a significant correction has begun. Last week, there were signs that a significant correction has started because the AUDUSD fell below 1.035. This correction may be as deep as the previous correction between May to Oct 2011. As with the last, this correction may last between 5 - 10 months and MSCI Asia ex Japan could easily fall 10 - 20%.

It is time to buy Amundi Volatility World and DB Systematic Alpha.

Additional comments: 13 April 2012

A short term rebound seems to have begun. It may last for up to a month. But beyond that, a significant mid term downtrend signal has been triggered for AUDUSD, mining indices, and the HSCEI Index. The mid term trend could last for 6 months to a year and the downside could be 10 - 20%! Within a downtrend, there will be short term rises that can last a month or two. The short term rebound seems to have begun for these indices. Use these rebounds to get out.

For the other indices, such as the MSCI Asia ex Japan, the midterm trend that began in Oct 2011 is still in tact, although it is losing ground. The short term trend is on the up. Again I would use this rebound to exit rather than add more risk now.