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Two Ways To Play: S&P Cuts Banks With Dull Knife


Strengthen your portfolio in good times and bad.


Cuts Like a Dull Knife

With increased risk for the entire sector, Standard & Poor's (S&P) cut its ratings on 11 financial institutions and placed a twelfth on close watch for a potential downgrade. Among the companies affected are Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM) and Wells Fargo (WFC). HSBC (HBC) was placed on negative watch (which suggests a downgrade could come at a later time), but its AA rating is still affirmed at this time.

But now that S&P is factoring government intervention as part of its ratings process, none of the banks are likely to get a rating lower than A+, or satisfactory credit quality. Hmmm.

An equally skeptical Professor Jeff Macke offered his thoughts on the ratings agencies earlier this year in Ratings Agencies as Dr. Kevorkian.

From the Bull Pen: Bulls can consider buying Northern Trust (NTRS) into its 20 DMA (near $45). A sell stop can be set below that level.

From the Bear Cave: The potential for a large bear market rally exists. So bears playing the downside might consider waiting until a stock like MasterCard (MA) approaches its 200 DMA ($180) for a better opportunity.

Quick Check Around the World

Asian trading closed with the Hang Seng -2.39%, Nikkei -0.91%, Sensex 0.23%, Taiwan 0.01% and Shanghai 0.14%.

Glancing towards Europe, we see the CAC -1.41%, DAX -1.32%, FTSE -2.25%

As of 8:20 a.m. EST, S&P futures are trading -1 to 891, and Nasdaq futures are -4.5 to 1221.

A Look At Commodities

Crude oil is trading -2.020 to 34.200 Gold is -18 to 835.42. Silver is -0.215 to 10.765, and copper is +0.300 to 130.45.

The dollar index is +1.528 to 80.003.

No events on the radar today. Happy Friday! Good luck!

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No positions in stocks mentioned.

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