21 June 2008

Technical Breakdown in US markets

This week's trading saw the resumption of the technical breakdown in the market.

Monday and Tuesday were important from a technical standpoint as we again saw the appearance of another confirmed Hindenburg Omen meaning the market is displaying very unhealthy tendencies

The fundamental picture of the economy is clearly sagging into recession due primarily to high oil prices and weak consumers and we should see some major fireworks as a result.

Royal Bank of Scotland warned its clients about a very bleak picture and the likelihood of a major stock market collapse that would be felt around the world.

Major financial institutions are now publicly confessing what we have known for quite some time about the problems that have been caused by stupidity, greed and negligence.

From a technical perspective the Dow – as of Wednesday - was below 12,100, which is an important level.

On Friday we continued to get some heavy technical driven selling. The Dow broke through the 12,100 level referred to previously and then breeched a very important level at 11,900. If the market closes below that lower level a couple of times next week it will signal a very serious breech of a long-term technical trend.

We've now had a cluster of 5 Hindenburg Omens in a short period of time probably meaning the odds of a very negative outcome has increased significantly.

There's a lot of important data and events next week including the FOMC meeting on Wednesday; final GDP for the quarter on Thursday; and new and existing homes sales.

Today Moody's downgraded both the major bond insurers, AMBAC and MBIA. This actually means that all the paper these insurers wrap must also be marked down which is very significant. These downgrades were the reason why there was so much selling in the financials today.

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