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Market Correction

The head of the IMF Rodrigo Rato warned leaders of the world's major economic powers at at meeting on the weekend "to correct global imbalances if they want to avoid a disruptive market correction."

Rato said "the global financial system was out of kilter because of the huge US current account deficit, weak growth in Europe and Japan, the low savings rate of US consumers and inflexible currency regimes in Asia."

"If policies do not adapt, do not change to react to these imbalances, we run the risk of an abrupt correction of the markets ... (when) confidence for different reasons could evaporate or could be reduced," he said.

This comes in the same week that Paul Volker Ex chairman of the U.S. Federal Reserve has warned of a coming financial crises if similar policies as mentioned by Rato are not implented. Although Paul Volker suggested that he didn't expect the polices required to be implemeneted.

Source: ChannelNewsAsia.com - IMF chief warns global markets risk 'abrupt correction'

Stock Market Fall

The Dow Jones and Nasdaq were both below their 200-day moving averages last week, this stock market fall is the start of something bigger to come. Last week was the worst week this year for stock markets in the U.S and also around the world.

The U.S. Stock Market fell as investors reacted fearfully to a poor earnings report from IBM and to data suggesting the U.S. economy is softening and that consumers are beginning to lose confidence.

The Dow Jones industrial average had a fall of 191.24 points (1.9 percent), to close at 10,087.51. It was the biggest one day fall for the Stock Market since May 19, 2003. The Dow Jones fell 373.83 points (3.6 percent) last week.


It will be interesting to see what Markets in Australia do tomorrow. The Australian sharemarket dropped almost two per cent on Friday, the biggest stockmarket fall since the beginning of 2003 a fall big enough to reverse all of the gains made so far this year.

There are concerns the Australian Stock Market will continue to fall when it reopens on Monday, after the Dow Jones index slipped again after the close of trading in Australia.

They say when Wall Street sneezes the world catches a cold. We will see... It will be interesting to see what happens if the Dow falls bellow 10,000.

A big stock market fall should lead to funds going into gold and silver.

Double Top

The Dow Jones looks like it is forming a massive double top chart pattern,
here is a chart of the dow jones in the last 100 years.

A double top chart pattern is when two distinct peaks form. A double top is complete when the second peak declines below the lowest level or the valley floor.

A double top is sometimes called an "M" formation because of the pattern it creates.

It is likely that this double top chart pattern is our warning before the start of coming stock market crash.

Fannie Mae and Freddie Mac

Treasury Secretary Snow today reiterated Greenspan's recent remarks and said that "Fannie Mae and Freddie Mac could pose a risk to the strength of the U.S. economy if the companies' businesses are not properly managed." More importantly proposals are currently moving though congress to empower a new regulator to close Fannie Mae and Freddie Mac in times of finanancial crises.

Perhaps there is a much bigger financial problem with Fannie Mae and Freddie Mac than we are told.

"You have to ask why the urgency in getting this through unless there was some financial derivatives problem of unprecedented proportions possibly brewing in either or both of these institutions." Michel de Chabert-Ostland of royalpalmtrading.com said.

Types of Stock Market Crash

There are two main types of stock market crash.

The first and less harmful type starts with a sudden sudden onset of panic, an often violent reaction to an event or trend that feels nasty at the time but tends to be short lived. In hindsight, these crashes are called "stock market corrections".

The 1987 Stock Market Crash on the 19th of October known as Black Monday was by far the biggest one day stock market collapse in history. However, the next day the dow jones was up over 100 points. At the time this was the biggest increase in the stock market in one day. A year later the Down Jones higher than it was prior to the 1987 collapse.

Another large stock market crash was on the 27th of October 1997 when the dow jones lost 550 points in one day.


The second and more harmful type is called a depression. In this type the stock market may not collapse spectacularly, and may give occasional signs of rallying, but over a period of years the value of the shares are reduced.

Stock Market Crash in 1929 is an example of the second and far worse kind of crash.

Intialy th crash was similar to the 1987 or 1997 crash with a boom followed by a rappid decline in stock values. But the differernce with the 1929 collapse was that it extended into a bear market lasting thoughout the 1930's which became known as the Great Depression.

So what type of stock market crash is coming. The bad news is it is the second type of crash and will become known as the 2nd Great Depression. It will make the 1929 Great Depression look like a practice run.