It was a rough week for global financial markets with serious meltdowns in every corner of the world.
In Asia, the Shanghai Composite dipped 2.1% to remain firmly in bear market territory below its 50 and 200 day moving averages.
In Europe, the widely followed DAX German Composite Index (NYSEARCA:EWG) fell 4.7% as Europe’s largest economy was roiled by ongoing stress and uncertainty over the future of the Euro and Greece.
Closer to home, the Dow Jones Industrial Average (NYSEARCA:DIA) dropped 3.5% for the week, putting in its poorest weekly performance year to date and logging 12 out of the last 13 trading days in the red, a phenomenon not seen since 1974.
The S&P 500 (NYSEARCA:SPY) was clipped for 4.3% while the Nasdaq Composite (NYSEARCA:QQQ) dropped 5.3% and the Russell 2000 Index of small cap stocks (NYSEARCA:IWM) led the way down with a weekly loss of 5.4%.
The Eurodollar (NYSEARCA:FXE) had an equally rocky week, dropping more than 1% for the week to $1.278.
Major markets are now vastly oversold and so a short term bounce could be expected within the context of a longer term downward trend.
On My Wall Street Radar
chart courtesy of StockCharts.com
In this chart of the S&P 500 (NYSEARCA:SPY) we see that the point and figure system issued a “sell” signal on May 8 with a “triple bottom breakdown” and now has a bearish price objective of 1180, approximately 9% below current levels.
More ominously in this chart, the 1180 price objective is below the blue bullish support line which is the line in the sand between bull and bear markets in point and figure charting. You can see how these blue and red lines really do act as walls and are clear indicators of significant directional changes.
Therefore, a break below approximately 1230-1240 on the S&P 500 (NYSEARCA:SPY) would be an extremely bearish development.
For a complete review of current technical indicators and factors at work see Ugly Technical Indicators Forecast Major Wipeout Ahead
The Economic View From 35,000 Feet
Greece and Europe continue to dominate the news as chaos and uncertainty seem to govern the country leading up to new elections now scheduled for June 17th.
While stock prices have put in a significant decline and it’s tempting to “buy the dip” and buy when there’s “blood in the streets,” this is only good practice as long as it’s not your own blood. There is likely more bloodletting to come as global risks have reached extraordinary levels and a “Lehman event” on an international scale becomes a growing possibility.