Stock Markets Heading for a Blood Bath Next Week

Sunday, June 3, 2012
By Paul Martin

By: Sam Chee Kong
Market Oracle
Jun 03, 2012

Well since our last analysis last week, both fundamental and technical aspects of the markets have since deteriorated much. On the technical perspective markets seems too weak to produce any meaningful rebound although all of them are in oversold conditions. The barrage of bad news coming out from Europe only helped to worsen the situation. Yesterday’s stock markets performances have been awful to say the least. The DJIA and S&P 500 had their worse 1 day drop this year.

On the technical side what we foresee in the coming weeks is that the markets will be push down to its limits, it will be like exerting maximum pressure on a spring. You can only press it down for that long and that low, the longer and lower you press the spring the more pressure you are exerting on it. Hence when you release your hand the force of the rebound will be very powerful. This is exactly what is happening currently to the Global Stock Markets where some indexes have been dropping more than 20% from its peak (considered bear run) and yet any signs of a rebound are no where to be seen.

Again, when the next rebound occurs we will expect it will behave like the rebound of the spring that we mention earlier. Market makers are doing a great job in keeping the markets down so that they are able to fill up their portfolio at a song. When they are finally filled, good news will be disseminated and the long awaited rebound will begin and just in time for them to unload.

On the fundamental side of the equation, things are not too encouraging as well. Just look at the following headlines.

1 According to the Business Herald there had been reported a bank run in the Chinese city of Wuyishan. Long queues of people waiting to withdraw money from the Chinese banks such as the Agriculture Bank of China, China Construction Bank and the ICBC Bank. More on China. The Chinese version of the PMI (Purchasing Manager’s Index) fell 2.9 points from 53.3 in April to 50.4 in May. Nevertheless, a drop in the value of 2.9 represents a contraction in the level of economic activity. The level at 50 represents the equilibrium and anything below it means there is a possibility of a recession.

2 India’s economy is not out of the woods yet, in fact it performed much worse than expected. India’s economy took a dive from recording a 10% growth in 2010 to an expected 5% growth this year. This represent a 50% drop in economic growth and officials from the Indian Economic Research Group is already panicking and are now finding ways to prevent any further deterioration in the economy.

3 The ongoing financial crisis in Europe had dampened the prospect of any economic recovery in Euro Zone countries. In fact quite a few of the recording negative growth in manufacturing. Manufacturing output in Greece fell by 14%, Spain fell by 4.6%, Portugal by 3.6% and Italy by 2.6%. While manufacturing output in Germany grew by 3.7%, its May PMI dropped to 45 compared to 46.2 in April and it is a 35 month low.

The Rest…HERE

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