Mon 6/4/12 2:24 PM – Likelihood of Big S-T Move in Stocks

Stocks have sold off pretty hard since their peak on May 1 and are down roughly 10% on the major indexes. Interestingly, small stocks and Nasdaq stocks, normally a good bit more volatile have not lost significantly more than large stocks. The Stoxx 50 European index is down 15% over the same span, though it was up today.

For technicians the fact that the S&P 500, the main index they follow, broke down through its 200-day moving average, the most widely used long-term average, is a bad omen. At the same time though, the market is pretty over-sold and bad news is everywhere. When bad news is pervasive good news has an outsized effect.

I expect the market to bounce here shortly. Whether it then continues lower depends on whether we get any good news from Europe and whether US and Chinese economic data continues to reflect an economic slowdown.

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