When is the market going to crash down?

This has been the Billion dollar question for everyone since we had Dow hitting record high 16,000, S&P hitting record high 1,800 and Nasdaq hitting record high 4,000.

It has been common that when major indexes hit their respective record high, retail investors become more wary of their reversal turnaround and expecting a crashdown in the stock market.

My colleague at work says that Mar 2014 is the turnaround day the market will come crashing down. Another colleague says the Fed will extend its buying program and keeps interest low until 2015. Research Analyst at UOB mentioned investors to be wary of Fed tapering in Jan 2014. Marc Faber, Dr. Bearish, has been warning investors that stock market could gone crashing down next year worse than the state of economy in 2008.

What about some market statistics?

We have the Shiller PE ratio, which measures PE based on a 10 year adjusted inflation, currently at a high of 25.42. Historically, it has a mean of 16.50. Based on past statistics, the higher the Shiller PE ratio, the lower the returns investors are going to get in the future.



Mean:16.50
Median:15.90
Min:4.78 
Max:44.20
We also have another indicator in the CBOE VIX, where it is a key measure of market expectations of near term volatility. Currently, VIX is hovering around 13 to 15, which currently is at the 52 weeks low. As this is only an indication, it might stay low for a good number of years. But nevertheless, it is still a good indication that your returns would be lower in the future with a lower VIX than a higher VIX.



As we enter towards the final month of the year, there will probably be volatility in the market due to markets hitting recent record high which makes investors cashing in on profits. Fund managers have also been seen taking off profits off their portfolio by rebalancing their respective weightage during the window dressing period. Until then, not you and I can predict where's the market heading in 2014, but we can do so more prudently by playing our trump cards cautiously, even if it means obtaining lesser returns in the next couple of months.