In last Friday’s market commentary, I suggested that over-indebted countries like Greece, Ireland and Portugal, among others, can’t and eventually won’t pay back the burden of continuously shouldering the mother of all indebtedness.
While the ECB and most governments are still in denial of that fact, anxiety surrounding the euro zone debt drama increased over the weekend and global markets took a licking. Stocks and commodities sold off and, as is the case whenever a global crisis erupts, flight to safety prevails, which included investing in the no-good favorite whipping boy of the world, aka the for long dead declared U.S. dollar.
As a result, the dollar rallied, along with bonds, and the only other assets class with star power, namely gold. If this euro zone crisis persists, or gets worse, you will likely see more demand for the precious metal. The dollar will be subsequently rising as well, and depending on the magnitude, this may result in further declines in domestic equities.
A combination of factors threw the markets for a look today. Poor manufacturing figures from Germany and China surprised analysts on top of Friday’s downgrade of Greek debt, joined by voter rebellion in Spain against severe austerity measures.
Technically speaking, some damage was done as the major indexes dropped below their respective 50-day moving averages. While that could be temporary in nature, I do not believe that U.S markets, or global ones for that matter, can decouple from the euro debt crises. We are all joined at the hip and, while a rising tide lifts all boats, the opposite holds true as well.
In terms of sell stops, not too much damage was done, although a couple of ETFs in our model portfolios dropped below their trailing sell stops, although barely. I will monitor the action closely and will make adjustments as they become necessary.
If you do your own investing, I suggest you keep a close eye on your sell stops as well. As I have mentioned over the past couple of weeks, the international funds/ETFs have been sliding faster than the domestic ones.
This has now been confirmed as the international Trend Tracking Index (TTI) has dropped sharply and only hovers above its respective trend line by +0.94%. That is in comparison to the domestic TTI’s position of +3.78%.
Stay tuned for further updates.Contact Ulli