Sunday, June 12, 2011

Nasdaq - Can 2,616 level hold ?


Nasdaq dropped another 41 points (1.5%) on Friday to close at 2,643, which is 27 points above its next important support level of 2,616, which is also the minimum target of the 'Head and shoulders' pattern. However, if the market has started its major corrective wave, all major support levels will provide only temporary support before the bear continues with its downward journey.

Richard Russell of the Dow Theory letter says,

"The whole current mess reminds me a lot of 1929-30. After the crash of ‘29, the stock market roared higher, even as the economy was simultaneously weakening. When the great post-crash rally died in April 1930, the market turned down with a vengeance, and the Great Depression began. …The market is probably now in the process of forming a complex top. If the market now turns down convincingly, we could see the beginning of Great Depression No. 2."

Nouriel Roubini, who famously warned of a massive financial crisis in 2006, is also getting bearish.

"Until now, equity prices were supported by better-than- expected earnings, sales and profit margins,” Roubini said. “But all three are under squeeze. With slow global economic growth, they’re going to surprise on the downside. We’re going to see the beginning of a correction that’s going to increase volatility and that’s going to increase risk aversion."

Better be careful.



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