Every rally in the past few months has been pinned on the hopes that the ECB might wake up and realize they are the only possible buyers of peripheral debt. The ECB criticized peripheral nations for not doing enough in terms of austerity. It was not irrational to read between the lines and assume that in turn for austerity the ECB would lend a helping hand. Not only did the ECB not help but they lowered their bond purchases to next to nothing last week. They actually helped less in return for austerity
ECB officials are spouting utter nonsense on a daily basis. Their statements are the equivalent of saying that water is not wet. We are stretched on the downside so it is very possible that we will see a snapback rally. However, it is difficult for me to imagine the type of rally we have seen in recent months unless the ECB acts. Nobody is going to believe the ECB will act until they do. The boy has cried wolf one too many times.
I have been moving between a moderate to aggressive net long position in recent months. At the extremes I have become more aggressive and I have lightened up into rallies. I currently stand at a medium sized net long position and I am a lot more hesitant to increase my longs. Hopefully, this hesitancy is a good contrary indicator as I would still much prefer a higher market.