Analysts: Stock Rally Might Be Setup for Bigger Market Collapse

Wednesday, 08 Aug 2012 10:40 AM

By Michael Kling

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Despite the current stock market rally, the market remains volatile and investors should remain cautious as the rally might be setting the market up for a bigger collapse, analysts warn, according to CNBC.

"I think we're in choppy waters and that continues. You’ve got to remember to sell if you own the stock market now," Charlie Morris, head of absolute return at HSBC Global Asset Management, tells CNBC.

The Standard & Poor’s 500 Index went above 1400 this week, while European stocks reached a four-month high, and Asian stocks achieved a three-month high. When the current rally fades, which might be this week, the market will be ready to collapse, experts warn.

Editor's Note: The Final Turning Predicted for America. See Proof.

"Watch out for the end of this week," says Sandy Jadeja, chief technical analyst of City Index, according to CNBC. "If we start seeing a negative close by the end of the week, that would suggest that next week, and the week after, we'll start pushing to the lower side."

Despite being bullish, Jadeja is worried about the divergence between current prices and technical indicators.

Dan Geller of the Money Market Index says the recent rally is irrational. "The rally on Friday after the release of the employment figures and the consumer confidence index really has no economic merit," he tells CNBC.

In a note to clients, according to CNBC, Barclays equity strategist Barry Knapp writes that the underlying economic factors — including slowing growth and political uncertainty — remain the same as they were in the second quarter when stocks dropped.

"We remain unconvinced that investors should chase the low volume 'wall of worry' August rally."

The stock market's choppy behavior since late June, with at least as much falling as rising, indicates the market is churning rather than building a sustainable rally, according to Barron's.

Plus, small-cap stocks are well below their June peak levels, although large-cap stocks are reaching higher highs.

Another troubling sign, Barron's reports, is that money is not flowing into stocks in significant volumes. Stocks seem to rise only when stimulus from central banks seems possible.

Editor's Note: The Final Turning Predicted for America. See Proof.



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