Markets Digesting Portuguese Junk

US futures are negative in early trading, down 0.5% as the Moody’s downgrade of Portugal reverberates throughout markets around the globe. The Stoxx Europe 600 benchmark is lower by 0.4% on the ratings cut ending a seven-day win streak, while British stocks saw their longest positive streak in two-years come to an end.

Late yesterday, Moody’s sliced Portugal’s credit rating four levels, from ‘Baa1’ to ‘Ba2’ with a negative outlook. The move puts Portugal at ‘junk’ status, just two months after receiving a $112 billion bailout package. This caused the bonds of the most debt-laden Euro nations, Spain, Italy and Ireland to sell-off. Only the selling continued into the equity markets, where Euro banks with exposure to Euro debt issuance dragged markets lower.

Commodities are also demonstrating weakness today in early trading, pulled lower by copper and crude oil on news China’s central bank will raise its benchmark deposit and lending rates by 0.25 percentage points. This represents the third rate increase this year, as the government tries to fight high inflation. The rate increase comes despite, fears of an economic slowdown and worries of souring loans to local governments held by Chinese banks.

The Oil Service HOLDRs ETF (OIH) will open negative with crude oil after trading up into technical resistance. The PowerShares QQQ Trust (QQQ), Retail HOLDRs Trust ETF (RTH) and the iShares Dow Jones Transportation Average ETF (IYT) groups have provided tremendous leadership for markets over the last week, but also find themselves extended on charts or up against technical resistance. The Semiconductors HOLDRs Trust (SMH) gained strength from yesterday’s SanDisk (SNDK) upgrade but is also sits just below key moving averages.

Cloud computing stocks continue to show relative strength, led by (CRM) and VMWare (VMW) close to 52-week highs, while Acme Packet (APKT) and F5 Networks (FFIV) look to base above key moving averages.

Some key stocks to consider today include Under Armour (UA) at new all-time highs, Wynn Resorts (WYNN) showing relative strength and Apple (APPL) after a huge two-day move into resistance. (BIDU) remains a trusted Chinese tech name for investors as it broke above resistance, while Goldman Sachs (GS) continues to disappoint buyers of the stock.

Investors will be looking to the ISM number today and the Morgan Stanley upgrade of the US automakers General Motors (GM) and Ford (F) to generate potential bullish momentum.

Disclosure: Scott Redler is short SPY, QQQ and long BORN

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