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Thursday, April 26, 2012

S&P Downgrades Spain

S&P cuts Spain two notches, from A to BBB+, based on contracting economy...cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain's key trading partners.

This could be the catalyst for the turn we've been wondering about.  It could be the difference between the H&S and analog playing out versus our top alternative.  Notice that we did break the RSI trend line identified the other day (yellow, dashed) but were stopped by the 2nd one we discussed earlier today.  Today's high was right at the shoulder line of the H&S pattern, and retraced a Fibonacci .707 of the recent 1422-1357 decline.

Keep an eye on the CDS and bond rates for Spain/Portugal/Italy and key regional banks.  Remember, all these rates are available on the new website:

Click on economics, then select market data.


  1. Pebble, couldn't post a comment on your new site, but looking forward to being a member once you get it all taken care of.  Thanks for the prize for winning the contest a few months back!

  2. Thanks for the heads up.  I'm actually on hold with GoDaddy as we speak, trying to resolve some coding issues re log ins.  The site will now accept memberships, but I'm still an hour or two away from pronouncing it ready for prime time.  

  3. ewt -- just sent you an email.  please let me know if you don't receive it.  We'll do more contests in the next month or two.  That was a lot of fun!

  4. Hello PW!   Regarding the downgrade of Spain being the catalyst, I have some doubt.   It is because the talk about a downgrade in a Euro countries (PIIGS) is not new.   The discussions have beeen going on for months.

    Just my humble opinion, a catalyst should be something powerful yet unexpected.
    At the same time, I don't know what kind of catalyst would be?   Maybe China suddenly raises interest rate overnight, or something to do with Dutch or Hungary, or Germany has a plan to leave Euro?

  5. I have doubts, too.  This certainly doesn't come as a surprise.  But, it'll be interesting to see the impact on the euro (so far, down slightly) and on bond prices. Many institutional investors (banks, insurance companies, pensions) are limited in how much of their portfolio can be invested in various grades of fixed income investments.  Then, there's the dog that belongs to this tail -- the derivatives market.

    We should know pretty quickly whether this will start a little wave of selling or not.  And, as you mention, there's the cumulative effect to consider.  This + Netherlands + Hungary + French election...etc.

    The last euro sell-off we had (.0482 between Feb 24 - Mar 15) sent SPX down 38 points once it got going.  But, SPX more than bounced back by the time EURUSD bottomed out (up 60 from the trough.) 

    What's interesting to me here is that a 30-point drop in SPX brings the H&S pattern (and analog) back into focus.

  6. Can SOMEBODY pleeeeeease explain what is going on here?

    Spain downgraded so they go deeper down the gurgler as servicing their already burgeoning debt increases. Retails sales across Europe plummet and UK back in recession and the markets respond positively.
    Them yesterday some clown says that the only two stocks people need in their portfolios is Exxon and AAPL......Great, the only thing we need is two companies to support the whole US economy.

    This is getting more and more absurd by the day and yet people are actually swallowing the diatribe and more and more analysts are calling for SPX 1500+ year end.

    Is it me that is way out of step?

  7. Lets face it people the markets are BROKEN.

    You can no longer trade these markets on either technicals OR fundamentals. Technicals point to one direction and it goes the other.
    Fundamentals are ignored in the hope of more QE.

    Like a drug abuser looking for their next fix.

    "There is no such thing as free markets anymore, just interventions"

  8.  Correction: The downgrade of Spain is indeed a different kind of "catalyst" to cause the Euro or stocks to move higher. 

  9. When I was a young pup, they taught us markets existed to fairly price future cash flow and/or economic events.  Once I got past that belief, it was a lot easier to make profitable investments.

  10. I'm looking for 1472, not because I think the economy justifies it, but because that's what the patterns tell me.  The AAPL/XON crap is just silly.  But, the reality is that stock prices (the few still traded by people, not computers) are driven by expectations -- better defined as the constant tug of war between fear and greed.  So, the reality you and I see is important, but what's more important is understanding what the rest of the investor world is likely to do. 

    Imagine you're at the front of the line at Walmart on Black Friday before the doors open.  You know full well that there's plenty of crap to go around and that everyone should remain calm for a better shopping experience.  That knowledge won't necessarily keep you from being trampled by the 10,000 idiots behind you.