"We do not see retests when everyone is still on the edge of their trading seat, anticipating the next shoe to drop."
- Helene Meisler of RealMoneySilver.com
For weeks, every press conference and every utterance from a politician has led to severe losses. This has conditioned market participants to expect the same thing going forward. Market participants were very eager to sell the news coming out of the Merkel/Sarkozy press conference even though it was largely a non-event. Those declines are now in the process of being reversed as European markets have pared losses from a weak opening.
As long as investors continue to look for a retest I believe the odds favor the upside. The market is still not overbought and put/call ratios continue to show heavy put activity. I believe that options expiration will exert upside pressure on the market as all those puts recently purchased go up in smoke.
While I continue to favor the upside I am quite long and would likely use a strong day to add some hedges to my portfolio.