As markets around the world put the brakes on a nascent comeback rally after only 3 sessions, legendary chart analyst Louise Yamada says it's a technical mess all over the world. "We are at a critical juncture right now," warns Yamada. Be it the BRICs, other Emerging Markets, or Europe, Yamada says "all of them have come into long-term sell signals" with the exception of Japan, Thailand, Jakarta, and a few U.S. markets.
As if the debt concerns out of Greece, Italy, and France weren't enough, word comes today that the global slowdown is hitting Europe's largest and most stable economy: Germany. The country reported a weaker than expected second-quarter GDP rate of 0.1%, compared to 1.3% in Q1.
"Germany was the strongest market and it had a very severe setback...and went right to the bottom of the 2010 support," says Yamada. "So any further decline there and you bring into question whether the market goes to the 2009 lows."
In the case of the Germany's benchmark DAX (^GDAXI), that would be a fall to about 3600, nearly 40% below current levels. The index has suffered a 16% drop in August alone.
Another global powerhouse is also in question. Yamada points out that Hong Kong's Hang Seng Index (^HSI) is at the same ''critical juncture." Right now it sits at 2010 support levels and is now looking at the possibility of a further 40% support gap back to its 2009 trough.
But before you race off in search of a safe haven, Yamada says it's best to wait for some clear confirmation that the global downtrend has reversed. Until that happens, "rallies would be best used to lighten some positions."
- Emerging Markets