The week was dominated by Tuesdays sell off in China's Shanghai Index by 9%, and its ripple effect across the Worlds Stock Markets, which saw falls of more than 4% across the board by the end of the week.

We had been warning of the likely hood of a sell off in China for much of February. Several articles preceded the sell off in the stock markets including Mondays US Subprime Mortgages Fallout and Declining Housing Market likely to hit the Stock Market.

The actual decline was put down to the US showing signs of moving into a recession later this year, which was publicly iterated by Alan Greenspan on Monday Stock Market Meltdown shows Greenspan's 'invisible hand' . The consensus view is that this should lead to lower US interest rates, weaker dollar and a surge in the Bond the market. So much of the weeks articles analysed the stock market drop from various vantage points, some articles suggest the bull market has been mortally wounded, others that the decline is of little significance.

On Wall Street the Dow Jones Index's behavior during the sell off ignited market manipulation conspiracy theorists as it transpired that for some 70 minutes the Dow gave an artificially high reading of more than 150 points. Dow Jones Index gave 150 point false Index reading on Tuesdays crash - Who profited? ,

Other consequences of the decline was a sharp record breaking rise in the VIX volatility measure, as traders and investors scrambled to protect portfolios against further declines. Spike in VIX Stock Market volatility - The End Of Complacency?

On the economic front the US housing market's subprime mortgages debacle continued to go from bad to worse. What caught many speculators off guard was gold's reaction, as the metal came to terms with the impact a recession will have on demand for precious metals and commodities generally.

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Profitable investing & trading for the coming week.

By Nadeem Walayat
Editor, The Market Oracle

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