Six Reasons Why the Market Correction Is Not Over Yet

Welcome To the Stock Synergy, Momentum & Breakout HUB On AGORACOM

Edit this title from the Fast Facts Section

Reply New Message

Prev Message Back To Forum Threaded View Next Message

kim

Rank: President [?]

Points: 9133 [?]

Votes: 77 Score: 3.7 [?]

Your Vote:

Please Log In to Vote

Did you know? You can earn activity points by filling your profile with information about yourself (what city you live in, your favorite team, blogs etc.)

Six Reasons Why the Market Correction Is Not Over Yet

posted on May 26, 2010 07:50AM

http://seekingalpha.com/article/207019-six-reasons-why-the-market-correction-is-not-over-yet

The market correction is not over. Here are the 6 reasons:

The 3-month Libor (London InterBank Offered Rate) has hiked up to 0.54%, the highest since last August. If the situation continues worsening, banks will stop lending to each other again, which could easily force a couple of them to go under.
The VIX has been above 40 for 3 times in the past 20 years. One was around the Black Monday in 1987 and another was the 2008-2009 Great Recession. Last time it jumped, it stayed high for 4 months. As of now, the chart is very similar this time.
The flash crash from May 6th is eerily strange. When Lehman Brothers (LEHMQ.PK) went bankrupt, the first day the Dow dropped about 780 points. We didn’t have any liquidity then. How could a 300 point drop trigger the issue? Either market makers were playing the game or it illustrates the potential liquidity issue in the markets as the sell side is way too big so that its pace has to be slowed down systematically. The ban on the naked shorts by the German government is just another footnote.
Three major indices, the Dow, S&P 500, and Nasdaq Composite, have stayed below their 200 day moving average for 4 days, except last Friday for the Nasdaq Composite, which simply confirms the downward trend.
Currently, the Nasdaq Composite Bullish Percent Index is at 51.39%, and its new-high-new-low stands at -157. Compared to the first big correction that happened in 2004, since the Internet bubble burst, the numbers are 33.77%, and -264.75, respectively. Further, the Nasdaq Composite Advance-Decline Issue is at -917 and the CBOE Option Equity Put/Call Ratio is 69%, leaving more room for further hammering.
Austerity measures at the government level, compounded with the ending of stimulus programs world wide, simply suppress the consumer spending down the road. As the markets look 6 month ahead, it is the right time for the markets to re-valuate all the stocks.

Saying that, the Dow has formed a hammer candlestick pattern yesterday. Let’s see what will happen today.