After the slide of the past couple of weeks, the markets were in dire need of regaining some footing. They managed to accomplish that feat yesterday, as the major averages spent most of the session stuck in a sideways pattern.
In the end, nothing much was gained or lost, which in itself was not a bad thing as some stability was regained—at least for the time being. I held on to my two positions that I had marked to sell, since they were on the upswing and ended up gaining around 1% despite the overall market hugging the flat line.
The good news was the Dow 11,000 milestone held; so did the S&P; 500’s 1,177 level, which currently represents important support. While a lot of focus was on GM’s monstrous IPO, the rest of the world was still concerned about the European debt crisis along with stress in Asian stock markets.
It’s too early to tell if the luck of the Irish will run out, as cross borrowing and lending has everyone looking over their shoulder. Ireland’s government has borrowed large amounts of money to support their banking system, which is where now the game of musical chairs comes into play.
Irish banks are significant lenders to Britain’s housing market, while British banks have lent huge sums to Irish companies as Britain exports more to Ireland than to any other country in the world. Bottom line is that each has a vested interest in keeping the other afloat.
My guess is that most European countries are intertwined in a similar fashion. If just one participant refuses to play along, this whole house of cards may come crumbling down.
Obviously, any fallout in Europe, or Asia for that matter, will affect world markets immediately. It is therefore imperative that you watch the trends in the market place and exit your positions should a reversal occur.