I have discussed the technical picture ad nauseum and it remains the same. We will be overbought on a short term basis at the end of this week or early next week.  In the intermediate term we remain oversold. The bigger picture determinant of the market's direction will be Europe so I wanted to use my opener today to discuss it.

The market finally succumbed to the widening sovereign spreads in Europe late yesterday. Even so, it seems the market has stopped reacting as much to bad news out of Europe. Market participants have likely come to the conclusion that when push comes to shove the EU authorities will not allow Europe to fall into the abyss.

I have long believed that Europe would not go down without a fight and have bought into many of the Euro induced panics as a result. However, now that many market participants are buying into this idea it is a far less attractive trade for two reasons. It has taken panic in order for EU authorities to act. Can there be action without panic? Secondly, panics are far more attractive entry points and usually lead to strong rallies even with little change in the fundamental picture.

In summary, I believe the big bailout will eventually come. It might take  a worsening of the situation in order for this to happen. I don't want to be too anticipatory of a bailout unless I am being paid for it, meaning that other market participants are in panic mode.

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