No deep squats are not bad for your knees. The knee joint is capable of flexing to approximately 140 degrees. It has been shown that those who squat deep actually have greater knee stability. You should squat as deep as you can while maintaining good form.
"Powerlifters squatting double their body weight, to depths of 130 degrees of knee flexion, have been shown in studies to have more stable knee joints than individuals who do not squat. In fact, separate studies have revealed that the knees of those who regularly squat deep are more stable than distance runners and basketball players! In one study of female volleyball players, researchers concluded that there was no statistically significant increase in peak forces at the knee when squatting to depths of 70, 90, and 110 degrees of knee flexion. Yet another study showed that forces on the ACL are reduced as the knee is flexed beyond 60 degrees, and forces on the PCL are reduced as the knee flexes past 120 degrees. Still further studies show that powerlifters who are squatting over twice their body weight experience shearing forces on the knee that approximate only 25% of the maximal tensile strength of the ACL, and 50% of the maximum strength of the PCL."
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2. Fry, A.C., J.C. Smith, and B.K. Schilling. Effect of hip position on hip and knee torques during the barbell squat. J. Strength Cond. Res. 17(4): 629-633. 2003.
3. Caterisano, A., Moss, R.F., Pellinger, T.K., Woodruff, K., Lewis, V.C., Booth, W., and Khadra, T. The Effect of Back Squat Depth on the EMG Activity of 4 Superficial Hip and Thigh Muscles. J. Strength Cond. Res. 16(3): 428–432. 2002.