The crisis in Europe continues to worsen, which is the reason for this morning's weakness. We are seeing a repeat of last year where Eurpean authorities are ignoring the problems, wishing them away. It is likely that there will eventually be a rescue but only when there are no other options. This does not necessarily mean that the market will play out in the same way. There are differences in market participants positioning from last year. In addition, many panicked out at the worst time last year causing them to underperform.
Last year heading into May market participants were extremely bullish. We now find ourselves with market participants that are cautious. It is likely that their positioning is more conservative than last year. Last year market participants prepared for another 2008, going full "risk off". This caused them to greatly underperform. It is unlikely that they react to the same extreme on the same news.
I believe it is very possible that we see lower prices but I don't believe that it will be to the same extent that we saw last year. I believe that sentiment is now in neutral territory. If we get extreme pessimism and fear in the coming days I plan to add on the long side. I was able to add some hedges when we rallied in the middle of last week. I was hoping for more of a rally to further reduce my net long but it did not materialize. This still leaves me with plenty of room to add if the bears push this too far.