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Too Much Shocking News For Markets To Handle!

 November 01, 2011 11:38 AM

Markets were shocked by the news yesterday that MF Global, a giant in commodities brokerage and trading, was filing for bankruptcy.

The estimated $41 billion bankruptcy puts it at #7 on the list of the largest bankruptcies ever. That the losses that led to the sudden bankruptcy were reportedly related to bets on the European debt crisis, the use of high leverage on holdings, and the use of derivatives, raises alarm flags all over the place.

And now overnight, markets were absolutely stunned by the news that Greece is going to hold a public referendum on whether the government should accept the rescue plan its government officials supposedly agreed to last week.

With the unpopularity of the austerity measures that will be required of the Greek population, a referendum raises serious uncertainties over whether the rescue plan will survive. 

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In my Saturday blog I noted that global markets were made significantly overbought short-term above their 50-day moving averages by last week's spike-up relief rally, making a short-term pullback likely.

But I, nor no one else could have expected these two back-to-back shocks would be the catalyst for the pullback.

Yesterday's plunge, as sharp as it was , is hardly a blip on the chart. But the shocking news from Greece will likely make for a even uglier day today.

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It keeps my questions of Saturday in the forefront.

"Will a pullback from that overbought condition be the beginning of another leg down in a resumption of the summer correction? Or will favorable seasonality, improvements in the U.S. economy, and the turn up by the 50-day m.a., result in the spike-up being the beginning of another typical winter months rally, with any pullbacks from overbought conditions only temporary blips on the charts?"

To read my weekend newspaper column ‘The Wall of Worry Is Still There But Not As Foreboding!' click here!

Subscribers to Street Smart Report: In addition to the charts and signals in the ‘premium content' area of the blog this morning, the regular ‘Mid-Week U.S. Market Signals and Recommendations' update will be in the subscribers' area of the Street Smart Report website sometime tomorrow.

Yesterday in the U.S. Market.

An ugly day to end the best month in several years.

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