Yesterday’s credit rating cut on US sovereign debt from “stable” to “negative” by Standard & Poor’s caused shockwaves throughout the markets which had already been spooked by possible restructuring of Greek debt and the result of elections in Finland. This last event would have passed by completely unreported were it not for the fact that the anti-EU party, True Finns, managed to poll almost 20% of the vote. Their overnight transformation from a fringe nationalist party into a powerful electoral force could now either derail, or put in doubt, any bail out for Portugal because Finland, unlike other eurozone countries, requires parliamentary approval to take part in bail outs, which can only go forward with unanimous EU support.
Prior to these “black swan” events equity markets were already struggling at key levels and exhibiting classic signs of weakness, in other words high volume on narrow spread up candles or wide spread up candles with relatively low volumes. In the forex market it was the euro’s failure to break through the 1.4520 price level which also suggested that market participants were becoming increasingly nervous and jittery.
The most obvious beneficiaries of yesterday’s rebuke to the US have been silver and gold which pushed ahead once again. Gold reached an intra day high of $1497 while silver touched $43.50 per ounce and the next obvious targets for these metals is now $1500 and $45 per ounce respectively. Their respective ETF’s, the GLD and SLV have also seen large inflows and I will analysing these charts given recent events.