Return of the Beta

I’ll get straight to the point.  A summary of five major reasons I believe a sell off is in the works for the end of August and September:

1. Simple profit taking – What goes up must come down; can you imagine the market if profits were never taken?

2. Analyst revisions - Just as analysts upgrade stocks when they are undervalued, it is also their job to downgrade stocks when they are overvalued… I imagine you have formed some opinions of some overvalued stocks.

3. Earnings season is coming to an end – Right now there seems to be an overwhelming amount of good news flooding the market. But I believe it is only a matter of time before the bad news outweighs the good news (or better than expected) once again, and a correction will occur. What reason would the market rally with overwhelming bad news?

4. China downturn -  Others cite trouble in China, which had been looked to by many as the nation to lead the world out of recession. The hopes were that China’s consumers would begin to demand products from other countries, a trend that in turn would spur growth for multinational companies. But the Chinese markets have been pounded over the past couple of weeks, with stocks there dropping about 18 percent.

5. Inside Dope -  Closer to home, those looking for a correction also are watching selling by traders inside companies. Insiders have been selling at a rate 28 times more than they have purchased in the last month

I don’t think the market will sink by more than 20%, but a correction of 5 to 15% over the next couple months isn’t out of the question in my opinion.  Although I am not anticipating the market to continue rallying, I will also note that the rally easily could, as money continues to pour into the market from the sidelines.