A classic divergence between Nasdaq and Dow shows underemployed economy ready to shock the stock market in January 2007
Fred Day
Dec. 28, 2006

In the final stages of the bull market, a lot of margin money in the hands of a few chasesa few select stocks creating what is known as diveregences. That is exactly what has happened. While Dow went up staedily, Nasdaq is going nowhere – a staggering 50% below the highs in year 2000.

The Dow broke its old high and made several new highs. But the Nasdaq – the growth side of the economy is hovering around 2400 with largest amount of liquidity in the system.

The net effect is a catastrophic collapse in worldwide stock markets in early 2007 – perhaps as early as January 2007. The collapse will propbably start from Euro Zone as German consumers go on strike as the new staggering 3% increase in value added tax take hold. It will then spill over to the US market and then to the Asian market.

Since 2000 collapse of dot com economy, 10 trillion dollar asset has been craeted in real estate though tax cuts and other fical incentives including lowered interest rates. However little of that has trickled into the product6ive side of the economy. The divergence between Nasdaq and Dow manifests how the bubble is raging in idle inherited wealth and the same time the enterprenureism is really dead in the water.

How far can the bubble continue? Ut depends on how much air can be pumped in. There are early signal the end of the game has come. In 2007 the stcok markets will collapse and a worldwide depression will start. Stagflation will change to deflation. Asia and Europe will be most affected as America tends to become more protective between 2007 and 2010.

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