Just as Wall Street had settled in on Tuesday to watch the Goldman Sachs grilling before a Senate committee, S&P; stepped into the limelight by downgrading Greece’s debt to junk and reducing Portugal’s by a notch.
That put the dollar and Treasuries into rally mode, while stock markets around the world headed south. A mid-day rebound attempt fell short as the chart above shows (courtesy of MarketWatch.com), and we closed near the lows of the day.
Ironically, Goldman Sachs’s stock closed up for the day. Go figure…
Despite jawboning to the contrary for the past month, Greek’s problems remain without a firm solution in place as there seems to be some discontent among the EU nations. As a side note, U.S. banks have only minor exposure to Greek debt, with the heavy load being carried by France and Germany.
The big question now is if yesterday was a one-day wonder in terms of sell off and another buying opportunity. I did add a couple of positions thinking this might be the case. Only time will tell if that was the right move. Of course, there is always the possibility that markets are topping out with more downside momentum on the horizon.
None of our sell stops were triggered, but we will watch market direction closely. For months, I have voiced my view that most likely an external event will derail the stock market rally. Whether this point has been reached is still unknown, but what is known is that the troubles in Euro land are far from being over.
Make sure you have your exit strategy in place now so you are prepared to act when it becomes necessary.