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Nikkei Down 7%, but Don’t Panic!

Posted on the 23 May 2013 by Andyepb

Chart of FTSE-100 at 22nd May 2013Yesterday evening, the US Federal Reserve chairman Ben Bernanke said that he could start to wind down QE within a few months if the recovery continues, though not stop it completely. This was enough to swing the Dow from positive to negative territory on the day, and overnight, the Nikkei index fell over 7% in Japan. I don’t think it is time to panic yet though; the Nikkei has nearly doubled in the last year so such corrections are to be expected and I imagine that if the Dow continues to fall the Fed will take appropriate action to reassure investors. A booming stock market is viewed as a necessary condition for the “recovery” to continue as it encourages US private investors (of whom there are many more than in the UK) to keep spending.

Looking at the chart, I think a drop in the FTSE (which is just above 6700 at the time of writing) to support around 6500 would be reasonable, before the bull run continues.

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