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According to Standard and Poors, a three pronged government attack is likely to take stocks lower over the coming weeks.  The three reasons for the potential for more downside are:

  1. Regulating the banks
  2. Chinese rate hikes
  3. Bernanke’s re-confirmation

S&P’s Chief Technican, Mark Arbeter, says the S&P 500 is likely to correct 10% further to the 1035 area.  At these levels there are major trendlines, retracement levels and moving averages that should provide support to an uncertain market.  The Nasdaq could fall to the 2050 level.  The continuing dollar rally is only throwing fuel on the fire:

“We think a continued rally in the greenback will hurt those areas of the market that have provided a leadership role since the bear market bottom, namely emerging markets and commodities. While we think these investment choices will continue to move higher longer term, we would avoid them for now.”

Sam Stovall sees the decline as a potential buying opportunity, however.  Unlike Robert Prechter, he does not see the resumption of a continued bear market:

“As a result of government interventions worldwide, global equity markets are in retreat and have stalled the 10-month bull market. While we believe the S&P 500 could decline by as much as 10%, we don’t think we are in the beginning of a new bear market. However, investors will need time to reassess the global earnings expectations as a result of governmental attempts to temper growth and prevent further financial crises.”

Source: S&P

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