The technical setup in the market is constructive. Market participants are positioned conservatively and we are oversold in the intermediate term. The issue is that sovereign spreads are blowing out. This is bad news. Below is a chart of the Italian 10 year bond yield from Bloomberg:
What makes it even tougher is that everybody knows the ECB will eventually step in but the ECB always waits for the markets to freak out before doing so. We have genuinely bad news with a positive technical setup. My best guess is that this will amount to a continuation of the choppy range bound trading we have been seeing.