Is this the beginning of a U.S. market meltdown like we saw in 2008 and early 2009?

Possibly not!! Going by the statistics, 2008 (in the US )was marked by financial and housing sectors disasters but the investors and others ignored the problems, which later snowballed into a crisis. 

But now the situation is a little different. The U.S. economy is much healthier now and is continuing to recover, with US stocks reflecting that improvement. That said, the Dow is up almost 60% since its March 9, 2009 low, and after such a huge advance the market is more vulnerable to correction.

Greece is the wild card. Greek Crisis was again at center-stage in global equity markets last week. The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc. in 2008. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels. The bond and money market turmoil is spilling over into stock markets. Overnight deposits at the European Central Bank rose to a 10-month high as the sovereign debt crisis made commercial banks reluctant to lend to each other. All this routed world equity markets. This overshadowed the improving consumer- confidence and other macro-economic data from U.S. economy, which was signaling optimism about recovery in U.S. economy.

However, the euro zone crisis could end with Greece, or that country could be the tip of a giant iceberg, as sub prime mortgages were to U.S. financial markets at the outset of the credit crisis.

No doubt global stock markets will feel powerful waves from Greece for many weeks and months to come. However, it could vanish as it happened in case of Dubai Crisis. The Greek economy does not have sufficient steam to rattle the world economies, unless the disease spreads to other European Countries, which looks unlikely at this point of time. 

Meanwhile, Chief economic advisor Kaushik Basu has said the ongoing sovereign debt crisis in Europe may, in fact, turn advantageous for the country's capital markets if it is contained at the present level.

But if the crisis snowballs into an overall global meltdown, then we cannot remain immune to its impact as the country is now integrated with the world, Basu told PTI in an interview.

"If a crisis in another industrialised country is a relatively small crisis, in fact, we get some very unusual advantage. More money flows into India," Basu said, adding people look for safer havens to park their money.

However, if the trouble gets very big, people get nervous about the world economy itself and there may be an outflow of money as people then put money into gold and other assets, rather than into stock markets anywhere in the world, he pointed out.

Basu's views are corroborated to a large extent by the movement of foreign capital into the country since the start of 2010, the time when fears of sovereign debt crisis in Europe, particularly in Greece, began to come appear.

There was net inflow of foreign institutional funds into the domestic capital markets since the start of 2010 till April-end, which was Rs 54,606 crore and the stock market barometer Sensex rose 93.9 points in the four months to close at 17,558.71 on April 30.

The fears of worsening crisis, however, led to the announcement of a massive USD 147-billion bailout package for the debt-stricken Greece last week by the Eurozone nations and the International Monetary Fund. And following this the domestic market, too, started feeling the heat and began to tumble down. 

The U.S. Treasury market and the dollar could both benefit from a global flight to quality. U.S. stocks, maybe less so. Writing in the Financial Times on Friday, Mohamed El-Erian, the chief executive of bond powerhouse Pimco, said the Greek crisis will weaken the global recovery and prompt investors to seek "safe government bonds over equities."

Back home, BSE METAL was the biggest weekly looser with -1702.94 points (-9.64%) followed by BSE REALITY with -332.39 points drop (-9.52%). Do you remember my sell call on Realty Stocks a couple of weeks back and my bearish views on metal counters??!! The realty prices are expected to nosedive, especially where the prices have risen without too many positive reasons.

FIIs sold stocks worth a net Rs 3835.82 crore in three trading sessions from 5 May to 7 May 2010. Their net outflow totaled Rs 4252.56 crore (till 7 May 2010), could be due to redemption pressure for European funds in their home countries.

The broader markets are still tottering under intense selling pressure on the back of shaky European markets. Rising debt concerns in Eurozone countries like PIIGS (Portugal, Italy, Ireland, Greece, and Spain) weighed on global markets, though IMF provided financial support to Greece.

Announcement of measures from ECB, IMF and G-7 countries to bail-out debt-laden south European countries could bring back the confidence in equity markets. Our Markets are now close to it’s strong Support Levels (arising out of 200 DMA and 61% retracement) of 4950~5000 of NIFTY. 

Now that the overhang of RIL-RNRL case being over, in the near term Global cues’ will dictate the Trend. Value buying is likely to emerge around these mentioned levels. Markets may stage a come-back in this week. 

Although, some parameters like fall in NIFTY OI PCR on the back of 'unwinding' of positions by the 'PUT-writers', FIIs' selling in CASH and in INDEX FUTURES suggests, worst is not yet over, but the other parameters like build-up in “At-the-money” CALLs, sharp increase in VIX indicate that markets to stabilize and likely to stage a come-back soon. 4900 strike, which consists of highest OI among the NIFTY PUTs suggests a very 'strong Support' seen by market players around these levels. Incidently NIFTY (spot) -200 DMA and 61% retracement of earlier rally fall around 4950 Levels of spot NIFTY. On the flip side, RISK in the markets will go up considerably, should NIFTY slip and close below 4900 mark. [With inputs from Internet, Sources and Brokerage Reports]