There is a lot of excited talk and explanation about what caused the sudden plunge in world markets yesterday afternoon. I have heard several reports now assuring people that the sell-off was an input error and “all a big misunderstanding.” Make no mistake, world markets are selling off heavily for many good reasons.
It may well be that there was a technical problem around 2:30pm yesterday that triggered a sudden drop, but markets were selling off heavily well before that happened and have been breaking down technically for the past several months. Do NOT listen to the long always robots out there assuring everyone that the correction is over and it was all a big mistake: “nothing to look at here folks, move along, move along.” Sure.
World asset prices have been heavily over-valued for the past 6 months and have become wildly disconnected from the realistic growth profile of the global economy over the next year and possibly further. The next phase of the on-going credit crisis is rightly taking world attention at the moment and it is called Sovereign debt. It is much bigger than the US banking crisis that rocked the world in 2008 and it will be hard for any risk assets to decouple from this re-pricing phase. (The US dollar and long bonds have broken out though as the risk trades come in for shelter.) Expect these issues to persist for months not days. Restrict your risk accordingly.
Cory’s Chart Corner
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