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Europe's Debt Crisis Isn't Only Reason Stocks Are Dropping

The acceleration of the European debt crisis was as good a reason as any for a stock market selloff that analysts say was long overdue anyway.

Demonstrators shout slogans against government's recent austerity economy measures during a protest in Athens.
Aris Messinis | AFP | Getty Images
Demonstrators shout slogans against government's recent austerity economy measures during a protest in Athens.

Widespread fear injected into the market this week came not only from the Greek concerns but also from technical signals the market had been sending for months, looming changes in financial regulations and a general feeling of unease and uncertainty from investors.

While the market could be setting up for a fairly aggressive correction, advisors say it's not time for US investors to panic.

"This market isn't selling off just because of Greece. This market was poised for a correction," says Quincy Krosby, general market strategist at Prudential Financial. "You can't compete with these pictures from Greece. But the fact is that regulatory market reform on its own was waiting to bring more risk and uncertainty into the market."

Fears over Greek debt and its citizenry's resistance to financial austeritylinked to a rescue package from neighboring countries sent equity markets down 2 percent or more both Friday and Tuesday.

News loops of rioting Greeks didn't help matters, nor did Moody's warning that it might downgrade Portugal's credit rating.

The reaction saw investors move away from risk assets in the equity markets and toward the safe havens of US Treasurys and the dollar.

The trend continued Wednesday, albeit with more muted losses as investors adjusted somewhat to Eurozone turmoil. Though the Dow fell only fractionally, market fundamentals were decidedly negative, with losers beating gainers nearly 2.5 to 1 on fairly heavy volume at the New York Stock Exchange

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
A trader at the New York Stock Exchange.

"Usually it takes a little while for people to realize...this situation going on in Europe may last for quite awhile," Warren Meyers, chief executive at Walter J. Dowd, told CNBC. "Because of that, now maybe I better think of protecting my money that I have over there and investing it in other places."

But investors are being cautioned about making wholesale portfolio moves based simply on the situation in Greece.

"Long-term, this isn't going to drive the US market unless it gets a lot worse," says Uri Landesman, president of hedge fund Platinum Management in New York. "The way I think this plays out is Greece gets their bailout, they make whatever concessions they need, and eventually it will work out."

To be sure, not everyone was as optimistic.

Dennis Gartman, who runs his own hedge fund and publishes the widely read "Gartman Letter" investment advisory, said the euro currency and the European Union itself are both likely to collapse under the weight of the debt crisis and the inability to devise a solution agreeable to all sides.

As such, he's advising equity investors to be wary of the market, at least while such a pall of uncertainty lingers.

Gartman said the market as a whole looks strong when examining major index levels compared to their moving averages, but that the current crisis calls for extreme caution.

"So long then as this moving average is moving 'from the lower left to the upper right,' and so long as the price itself remains above that moving average, we still have to call this a correction in a bull market and look to buy weakness rather than sell strength," he wrote.

"In that light, the sideline really does look all the more inviting," he added. "We are long-term bulls; but we are uninvested bulls at the moment, preferring safer harbors."

Prudential's Krosby suggested investors stay diversified and be selective, echoing a familiar strategy of looking for quality rather than areas that were beaten-down during the market plummet following the financial crisis. The latter strategy worked well but seems to have run its course as investors turn more toward value than growth.

From a technical perspective, Landesman expects the market to test 1163 on the Standard & Poor's 500, and should that line break the index could fall to 1100.

'I'm not nervous about a broader fall than that," he says. "If it wasn't for what is going on in Europe, the US market would be at least 100 points higher on the S&P, if not more."

Nervousness over global events is but another obstacle for the market to overcome.

"Should it come to a Greek default it will mean additional headline risk and volatility," Mike O'Rourke, chief market strategist at BTIG in New York, wrote in his morning analysis. "But the ensuing aftermath will likely create an opportunity for US equity bulls."

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