s & p downgrades us debt , page-6

The SPX sold off early on with expectations of this. It rallied mid morning/afternoon when ECB decided to do a Bernanke and buy Italian bonds in support of a dying economy. (TARP redux).

Gradually as the day wore on, late comers to the shorting game would be covering their positions, locking in small profits, and longs who chopped out at big losses early on decided the world was going to be a safe place, especially since the SPX rallied 40 points of its lows to 1210.

Many traders would have felt, as the day wore on, that the likelihood of S&P downgrading AFTER Fitch and Moody's reaffirmed with a negative watch was less and less of a possibility.

The markets sold off slightly into the close, as traders who bought the bounce took some gains off the table. Judging by the late 10 point rally, many bought what appeared to be cheap stocks in an already recovering market, backed by the ECB's purchase of Italian bonds, and that all "known" bad news was out.

This news was expected, and discounted to be a slight possibility. That it happened so quickly, is going to be a shock for a few.

But here's the bigger problem - this SHOULD result in funds dumping US paper (as their mandate requires AAA status). Which means the USD will get hammered?

Or will the world markets sell off, and the USD rallies?

Scratch head.