Follow Through By The ECB Will Be Key

The EU laid the ground work for a Euro TARP program yesterday. This is a good first step but it will be impossible for the crisis to lessen without the help of the ECB. In their last meeting the ECB did nothing. Many believe the reason they did nothing was because they wanted EU leaders to act and if they would have eased market tensions their would be less of an incentive for EU leaders to act. It seems the ECB have gotten their wish.

The EU leaders have done all they can do. It is time for the ECB to lend a helping hand. The ECB meets on July 5 when a rate cut is expected. There will need to be help on the liquidity front with LTRO III or bond buying. If they help with liquidity there is a fighting chance that this plan can work.

From a trading perspective there are no easy trades. We are neither very overbought or oversold and sentiment is mixed. We are getting closer to the top end of the range we have been trading in.

Just Trying To Survive

My core positions have not been faring well recently except for Vodafone. Today Wellpoint joined the party and is down 5% (although I wrote covered calls against the position a couple of weeks back that are helping ease the pain). My main goal is to get through this difficult period in tact. I believe the names I own are great values and I want to be able to see these positions through. This has meant trading less because I do not want to add to my losses.

The most important thing in investing is living  to play another day. Luckily, I had a very strong start to the year so my recent losses  have turned a great year into a good year. Once I weather this storm I look forward to being more aggressive with my trading.

Confused Investors

Sentiment is best used as a trading tool when it is at a bearish or bullish extreme. Currently sentiment indicators point to an investing community that is confused. The Investors Intelligence, NAAIM, Consensus and Market Vane  surveys are mixed. Rydex traders are excessively bullish while the put/call ratios and the AAII survey point to excessive bearishness.

Overall I would characterize sentiment as slightly on the bearish side but not at an extreme. After being whipped around the past few years it seems that investors don't want to commit too far into either camp. This should lead to a continuation of the wide trading range we have been in until there is more clarity one way or the other with regards to earnings and the crisis in Europe.

Sticking With Wellpoint

Wellpoint is one of my larger positions and I intend to hold it through tomorrows Supreme Court Obamacare decision. I wrote it up a while back on Market Folly. When I bought the stock I did not think that Obamacare would be over turned. I believe the risks of Obamacare are already priced into the stock as it trades at eight times next years expected earnings.

I could even imagine Wellpoint trading higher in a few weeks after a negative decision. The uncertainty surrounding this stock might be a bigger issue than the decision itself. The uncertainty will soon be resolved.

The Absence Of Bad News

In the absence of  new bad news the path of least resistance seems to be higher. According to Sentimentrader.com the final stretch heading into the July 4 holiday was negative only 3 times since 1990. Bonds had an excellent quarter while stocks have fared poorly. Therefore any quarter end rebalancing should be in favor of stocks at the expense of bonds.

In the bigger picture it seems that the market is waiting for more clarity one way or the other on how bad this slowdown will get. Until then we likely are in a trading range with neither the bulls or bears wanting to press their luck. Analysts are currently estimating $105 in earnings for the S&P 500. I believe the market is pricing in $95 in earnings, which would amount to 14 times earnings. The risk in earnings is clearly to the downside but there is a large cushion in terms of valuation.

Wait and See

A nasty day like yesterday tends to lead to some short term stability at minimum. In addition, we are nearing quarter end. I believe the odds are now slightly favoring the bull camp for the balance of the week. The reason I say only slightly is because the market remains short term overbought. Its possible that we will not be maximum short term oversold until the July 4 holiday.

The news is undeniably bad but the valuations are good. The trillion dollar question is how will the bad news effect earnings. I remain of the belief that in order to get a lasting decline in the market earnings will need to take a large hit. Even if the economy weakens that is far from a sure thing.

 

The Middle Ground

Every time the market rallies for a few weeks we start hearing about a self sustaining recovery and every time we sell off we start hearing about another 2008. Both these opinions have been completely wrong as we have seen a muddle through economy for the past 3 years with fits and starts. The market is now declining so the 2008 chorus is growing loud.

A major difference between 2008 and now is the starting point. The S&P 500 trades at 13 times projected earnings. Going into 2008 valuations were significantly higher. Valuations are already pricing in a bad economy so in order to move the needle the economy and earnings will need to be significantly worse than expected. In 2008 the economy and company earnings were being inflated by a real estate and a debt bubble. The decline in earnings were a result of this bubble disappearing. There are far fewer excesses in today's economy.

A muddle through economy like we have been seeing would likely be a victory for the bulls even if it is on the slow side. There are numerous imbalances in the economy so the bear case is possible. The way I deal with these risks is to own companies that will be able to survive and remain profitable in any economy as well as holding some hedges. But I have no interest in being net short. It just seems like a poor risk/reward given that an economic collapse is needed for the bears to win. What if we muddle through for another year?

 

Edgeless

I can make both bullish and bearish arguments for the coming week. At minimum, I generally hold a weak opinion of market direction coming into a new week but I see no edge either way this week. If we sell of for the first half of the week it would set up a long trade for a quarter end bounce. If that fails we would be oversold early next week so their would be a second out for a bullish trade.

The bear case for the coming week is that the market is still short term overbought and will not be oversold until early next week. In the past few summers it has taken a fully oversold market in order to get a rally. Furthermore, nasty down days like last Thursday tend to have some follow through after a bounce.

The bull case is that the market is still oversold in the intermediate term. On the first down day everybody suddenly turns into a grizzly bear well versed in why we are all doomed. Equity allocations are low and valuations are reasonable. We are headed into the end of the quarter so its possible we see some turn of the quarter strength.

Two Way Moves

The market became overbought early in the week and responded by going lower as the odds would suggest. After yesterday's big down day the market bounced, once again as the odds would suggest.  Does this mean that we will see more two way action rather than the one sided moves we have grown accustomed to? I hope so but I'm not holding my breathe. Have a good night.

Another Great Quote From Howard Marks

Another great quote from Howard Marks latest memo which can be read here:
Many of the biggest mistakes made in the business and investment worlds have to do with cycles.  People extrapolate uptrends and downtrends into eternity, whereas the truth is that trends usually correct: rather than go well or poorly forever, most things regress to the mean.  The longer a trend has gone on – making it appear more permanent – the more likely it usually is that the time for it to reverse is near.  And the longer an uptrend goes on, the more optimistic, risk-tolerant and aggressive most people become . . . just as they should be turning more cautious.

-Howard Marks

Take Note Of The Differences

We had scares the past two Summers that turned out to be buying opportunities. The reason being that corporate earnings were largely unaffected by these scares. This year we are starting to see a slowdown in corporate earnings. A big decline in corporate earnings would have  a lot more teeth than an oil spill or news out of Greece.

Valuations are not high so a slowdown in earnings is unlikely to effect the market too badly. I would not be surprised to see the market rise in the face of an earnings slowdown as valuations are on the low side. It would likely take a large drop in earnings for us to see a big reaction from the market. I believe it is unlikely that we see a large drop in earnings because there are so few excesses in the economy and the corporate world.

In the past 30 years there were two large corporate earnings declines, the recession following the tech bubble and the recession following the real estate bubble. In both cases there were many excesses in the economy and at corporations. A clearing of those excesses is what led to the large decline in earnings. I do not see anything comparable today in the corporate world or the economy at large. I am not saying that a large corporate earnings decline cannot happen. I only want to point out some of the differences as everybody is already familiar with the bear case.

In the shorter term a nasty day like yesterday typically leads to some sort of a rebound, which we are seeing this morning. We are still a long way away from being short term oversold (July 3) so its possible that after the rebound we see a retest of yesterday's lows or even lower lows. I remain of the belief that the downside will be limited as the intermediate term indicators are still pointing up. With that said, the closer we get to the oversold reading the safer it would be to buy.

Are We There Yet

Everybody thinks they want a pullback until we actually get one. The market will not be maximum oversold in the short term until July 3. That is the potential for the length of this decline. I don't believe the decline will last that long but even if it does its unlikely to be straight down. Usually there is a move down like we are seeing followed by a bounce, followed by another move down.

I am short SPY puts that expire tomorrow. If the market does not bounce tomorrow this will remove a small portion of my hedges. This is consistent with my view that the market will make a higher high once this short term decline is over. Have a good night.

The Window For A Decline

The window for a short term decline in the market remains open and that is the scenario I would prefer to see. In recent years overbought readings in uptrends have often been worked off by going sideways. We have gone sideways for two days since Tuesday's open so its possible that that we are on our way to this scenario playing out again.

The reason I prefer a two steps forward one step back advance is because there is less of a chance of a violent reaction in the opposite direction and it works better with my trading style of selling strength and buying weakness. Just buying and holding on for dear life is not how I trade.

When the market corrects it shakes out the hot money, trend followers and non believers. This makes for a healthier advance where there are fewer participants ready to sell at the drop of a dime. I believe that bulls would be better off in the intermediate term with a decline over the coming week.

Used The Weakness

I used today's weakness to write the 133 and 134 SPY weekly puts against a portion of my hedges. This allows for a little more weakness in the short term, but that is weakness I want to buy as I believe the intermediate term picture is positive.

A Hedge Fund World

This post is a reminder that we are in a market dominated by hedge funds. While they don't control as much assets as pension funds or mutual funds their exposure jumps around a whole lot more so they are the marginal investor moving prices around.

When the market goes down they "de-risk" as a group in fear of having too large a draw down. When the market rallies they rush to put exposure back on in fear of missing out. They are reactive. This type of behavior causes extreme moves.

Both moves higher and lower seem endless as this strategy, if you can call it a strategy, amplifies momentum. As long as hedge funds as a group continue to act like chickens with their heads cut off it is prudent to allow for larger market moves than would be usual.

Nosebleed Territory

I believe the market has gone too far, too fast as the S&P 500 has climbed nearly 100 points from its lows two short weeks back. Some stocks that I wrote covered calls on have surpassed or are approaching their strikes. This automatically reduces my net long exposure. If this were not the case I would be reducing my net long exposure. I expect sideways movement for the rest of the week at best. I would not be surprised to see us go down a couple of percent. Have a good night.

More Thoughts On The Overbought Reading

The overbought/oversold indicator that I use works based on the duration of a rally. A market that has been rallying for two weeks is short term  overbought. The reason this likely works is that after two weeks of fighting a move  most of those who will give up have given up.

I have been thinking about the current overbought reading as it has been approaching. One thought that crossed my mind many times was that many people were not willing to buy ahead of the Greek election. Maybe waiting a single day after the Greek election was not enough time to achieve the goal of getting the holdouts into the market, especially considering that we were intermediate term oversold.

I did not want to rationalize the overbought reading so I tucked this thought into the back of my mind. It appears that this thought may have had some merit. However, at this point I believe we are now overbought even considering the Greek election.

Short Term Negative, Intermediate Term Positive

Below is the 10 day moving average of the NYSE Advancers-Decliners showing that we are short term overbought



The overbought reading is a negative in the short term. The fact that this indicator has made a higher high and that we are intermediate term oversold are both positives in the intermediate term. This makes it very likely that the market will move higher in the intermediate term even if we do see a short term pullback.

If the market were to decline during the remainder of this week that would lead to a good risk/reward setup. In recent years we have seen fewer pullbacks in up trends, so a pause for a few days would also likely be buyable. In the very short term the market is vulnerable to a pullback.

Primal Instincts

Now that the S&P 500 is up 80 points in two weeks it seems that everybody is suddenly a bull. It is not a coincidence that this is happening just as the market is registering as overbought. Humans have a herding instinct. There is power in numbers and this herding instinct likely helped man survive in the wilderness thousands of years ago. This primal instinct does not help in markets.

I too feel more bullish than I did two weeks ago. However, I realize that I am just an overgrown primate and that this is probably not an instinct I want to follow. I am holding tight as we are still oversold in the intermediate term but I am not adding to positions up here. If we get a few days of corrective action I believe it will represent a better risk/reward. Have a good night.

The Law Of Diminishing Returns

I believe we have reached the point of diminishing returns on news coming out of Europe. In the past couple of years it has been costly to panic out of the market based on European news. Like Pavlov's dogs market participants are beginning to realize this. Spanish yields are at record highs today and the market has barely blinked.

Whether one agrees with the actions of EU authorities or not, it has become increasingly clear that when push comes to shove that they will not let the system collapse. As a result we are not likely to see the same extreme responses based on scary headlines out of Europe. I am not belittling the problems or saying that the market cannot go down. I am just saying that it will take something different.

Almost Short Term Overbought

As I have been writing for a week now we will be short term overbought at the end of the day today. We remain oversold in the intermediate term. A short term overbought condition generally leads to a pullback or some sideways movement. The intermediate term oversold condition makes it likely that the market rallies to a higher high once the short term overbought reading is worked off.

A decade ago a short term overbought, even within an intermediate term oversold,  would consistently lead to pullbacks but in recent years we have seen more sideways movements. As a result I no longer look to play these short term overbought readings aggressively. I have sold out of too many markets where I believed we were going higher but was looking for a pullback.

The S&P 500 has rallied 70 points and I expect us to pull back some time this week. It is prudent to take some profits and as a result I wrote some covered calls and I allowed some short put positions to expire without rolling them. With that said, I am holding on to the majority of my longs despite my expectation of a pullback.

Conventional Wisdom

The conventional wisdom was not to take too much risk heading into the Greek elections. It seemed like a logical idea but that is what makes markets so tricky and challenging. This is the reason I rely on indicators rather than whatever idea sounds good. The fact that we were intermediate term oversold and market participants were positioned conservatively stopped me from drastically reducing my exposure despite how sound this advice seemed.

If the Greek elections turn out to be  a non-event those same people might find themselves chasing the market higher on Monday. We will be short term overbought at the end of the day on Monday. It should be an exciting week.  Have a great weekend.

Relief Rally Would Likely Be A Short Term Top

The market will be overbought at the end of the day Monday. If the market has a relief rally after the Greek elections on Monday that will likely mark a short term top. Short term overbought readings used to consistently lead to pullbacks. In the momentum market of recent years many times we have seen short term overbought readings worked off by going sideways for a few days.

The chart below is the 10 day moving average of the NYSE Advancers-Decliners. We will be dropping negative numbers today and Monday so the line should be moving higher. By Tuesday it will be very difficult for the line to continue to climb.



On an intermediate term basis the market remains oversold. That is the reason I will not likely be looking to play this short term top aggressively. I used the rally to sell some covered calls but I don't plan on doing much more. The chart below is the 30 day moving average of the NYSE Advancers-Decliners


Sentiment seems to be lining up with these readings. A rally on Monday would likely get market participants a little too bullish short term. But in the intermediate term a two month decline has turned many cautious.

Europe

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.

A Few Days Away From Overbought

The situation in Europe continues to worsen as Italy's short term borrowing rates rise. The market's reaction has been muted thus far. Assuming that the market is able to continue to shrug off Europe, the short term technical picture will become more difficult in a few days.

On a short term basis we will be overbought at the end of this week. Good news from the Greek election on Monday would come just as the market is overbought. On an intermediate term basis there are more reasons to be constructive. I believe we are in a large range so I used the strength in recent days to write covered calls against some positions. I would likely use weakness towards the bottom of the range to write puts or add to longs.

Pleasantly Surprised

Market moves rarely surprise me but today's move higher did. After yesterday's drubbing I thought the market might be able to bounce but I did not think we would see this type of strength with sovereign spreads blowing out. The technical picture remains favorable but if spreads continue to blow out the upside is likely limited to the top of the range I believe we are in (around 1360 on the S&P 500). If the ECB does something to help get spreads back under control we could see a move out of the range. Have a good night.

Minefields In Value Investing

I was discussing with a friend how amazing the valuation of Symantec was at less than six times free cash flow. It led to a bigger question of why certain stocks are getting so cheap. I believe it is the result of an aboslute minefield in value stocks in recent years.

Many value investors were killed in financial stocks banking on book value or normalized earnings. Others were caught in newspapers, radio or brick and mortar retail operations that were victims of the internet. Than there were the victims of technological obsolescence like RIMM, Nokia and Kodak. Let's not forget the coal and natural gas names who were victims to record low natural gas prices due to fracking.

I cannot recall any period of time where there were so many value traps. This has beaten and bruised value investors. When there is an issue with a company many are no longer willing to look past anything. Many who have been caught in one of these traps sell first and ask questions later. I believe this is the reason so many companies trade at such cheap levels. I also believe it is an opportunity if one can pick out the survivors.

Game Theory

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.

A Surprising Turn Of Events

On an intermediate term basis the market remains oversold. On a short term basis the market could climb through the end of this week before it would be overbought. Market participants are positioned conservatively according to most surveys and anecdotal evidence. When the news of the Spanish bailout came out it seemed the market was poised for a squeeze higher as under invested market participants would have been forced to chase the market higher.

The size of the bailout of Spanish banks seems large enough at 100 billion Euros, one could even call it overkill. The funding should not be an issue as the ECB is allowing the EU to fund it by issuing bonds. This is simply a fancy way of printing money while avoiding the embarassment of admitting to it. When Italian and Spanish bonds opened for trading overnight it was somewhat surprising that they only had modest gains. These modest gains have quickly turned into large losses in the face of what appears to be good news.

In the long run the situation in Europe is unsustainable with countries such as Italy and Spain having to borrow at such high rates. The hope was that with the Spanish bailout that the pressure on rates would ease but they have in fact worsened. This makes for a tough call as technically there is room for the market to rally. At the same time the market has come a long way and could use this negative fundamental development as a reason to correct a bit.

What A Difference A Week Makes

A week ago today there were calls for a Black Monday and an economic apocalypse. CNBC had a  Markets In Turmoil segment Sunday night where Maria Bartiromo and Jim Cramer agreed that the market was on a one way trip to hell. It is not a coincidence that we are closing in on the strongest week of the year.

Nothing has changed in the past week from a fundamental perspective. EU officials are still doing nothing except making statements and the ECB did nothing at their meeting. One can even argue that the situation has worsened. Most people try to explain every market movement based on news events and economic indicators. There is little need for a tortured explanation as the actual explanation is quite simple. Market sentiment swings between hysteria and euphoria. Last week we were in the hysteria stage and we are now swinging back the other way. Its that simple. Have a great weekend.

Home On The Range

I believe that the market is likely to trade in a range for the next few weeks. The low end of the range will likely be somewhere modestly above this weeks lows while the high end is likely around 1360 on the S&P 500.

The downside is supported by the intermediate term oversold condition, the negative sentiment and the recognition that when push comes to shove that the authorities are not likely to let a complete collapse occur. Likely to cap the upside are the uncertainty in Europe, seasonality and worries about the economy. More decisive moves out of Europe would likely send the market towards its yearly highs but it has not paid to hold ones breathe for action out of Europe.

I think the market is likely to visit the higher end of this range but there is risk to thew low end of the range if we get another scare out of Europe. My plan is to trim exposure towards the top of this range and add towards the bottom.

Slightly Reducing Exposure

In the past two days I rolled some covered calls from June to July. I also repurchased some puts that I was short. This modestly reduces my long exposure.

Different Time Frames

People are often confused when I express my market opinion. Most people, who don't spend as much time on market timing as I do, are either bullish or bearish. I have multiple time frames in my mind and might have a different opinion on different time frames. For instance, I might be bullish looking a month out but think that in the very short term the market is extended and could go down for a few days.

There are four main time frames I tend to think in. They include very short term (1-2 days), short term (5-10 days), intermediate term (4-12 weeks) & long term (years). I try to base most of my activity on the short and intermediate term, while keeping the other two in the back of mind.

The best trades happen when most of these time frames are lining up. On Monday, all time frames but the long term were at extremes. The result has been a very large rally in a three day period. However, by this morning the market became extended in the very short term and this was a negative. The short term is still supportive but less so than Monday. The intermediate term is supportive as the market has been up for three days after going down for two months.

Somebody asked me my market opinion this morning. I said I thought we were extended in the very short term. The response I received was "Already?".  I realized at that point that there might be some confusion. I hope this adds clarity.

 

The Easy Trade

If you can believe it: that was the easy trade. On Friday everybody was talking about the coming apocalypse and a possible crash on Monday. From Monday's low we rallied 50 S&P points. From moments of extreme pessimism and fear we generally get a snapback and we just saw it.

We are not yet overbought so there is not an easy trade on the downside although it would not be surprising if the market took a breather. I don't believe we are headed to new lows and this rally should last a few weeks.  That does not mean we won't have nasty shakeouts along the way. I'm expecting a bumpy ride. Have a good night.

Slow Rally

The rallies we have seen in recent weeks do not have the same zip as the rallies we saw last summer. Getting too bearish the past two Summers has been a costly mistake and it seems that market participants remember this lesson. This is likely stopping the bears from pushing too hard and finding themselves caught offsides. The result is smaller, less ferocious moves than we saw last summer (I know its a little odd to call these moves less ferocious).

I have been complaining that the Rydex and Investors Intelligence indicators refuse to fall into place. The Investors Intelligence indicator came out today showing the bulls being just about as low as they were last Summer and Fall. The difference is that the bears are not spiking into territory that usually kicks off an intermediate term rally. Once burned, twice shy. I expect this to continue and believe buying oversold and selling overbought will work this summer.

Some More Extremes

Newsletter writers are as bearish as they have been since the bull market started in 2009. According to SentimenTrader.com they are recommending a nearly 20% net short position. In the Nasdaq they are even more extreme, recommending a net short of 47.1%. This is the lowest reading since the Fall of 2010. Most evidence points to excess bearishness but Rydex traders refuse to fall into place and remain stubbornly bullish.

There were some signs of downside exhaustion in yesterday's markets. Treasuries were no longer able to rally and new lows contracted on a down day. I believe the weight of the evidence now points to excess bearishness. The  economic woes are well known and "what everybody knows is not worth knowing" when it comes to the market. I expect a rally.

Expecting A Turnaround Tuesday

I believe there is a good chance we will see a Turnaroud Tuesday tomorrow. It is amazing how  the market can never seem to turn on a Monday. Jeff Saut tries to explain the phenomenon in his weekly missive:
What tends to happen is participants go home and brood about their losses over the weekend and “show up” on Monday in selling mode, which often leads to “turning Tuesday” (read: recoil rebound).

There are some other gems in Jeff Saut's weekly missive this week.
What is interesting to me is that since last October 4th’s “undercut low” the chant from most investors has been, “We want a pullback to become more fully invested.” Now that we have the pullback everyone is in panic mode (again).

He also explains the concept of a selling stampede, which should be almost over:
Indeed, the Dow’s decline is now 22 sessions long. Such “selling stampedes” typically last 17 – 25 sessions before they exhaust themselves; it just seems to be the rhythm of the thing. This has been my observation over the years in that it takes this long to get participants bearish enough to finally panic and throw in the towel by selling their stocks. While it is true some stampedes have lasted more than 25 sessions, it is rare to have one run more than 30 sessions. Today is session 23 on the downside.

Contrary Indicators

Jim Cramer and Maria Bartiromo hosted a Markets In Turmoil special last night on CNBC where they both agreed that we are going to hell in a hand basket. If that is not a contrary indicator than I don't know what is. Everybody says they want to buy when there is blood in the streets but few actually do. The best time to buy has always been when it feels the worst and there are all the reasons in the world to sell.

It was so easy to buy after the February employment report when everything seemed great but it turned out to be a poor time to buy. The correct time to buy was last August after S&P downgraded the US credit rating. The current situations feels a lot more like August than February. Some sentiment indicators are not quite at the extremes we saw in August but they are getting close. The situation in Europe is very scary but it was present in February as well. It was just being ignored. Even if one has a bearish long term outlook it generally does not pay to sell into moments of hysteria. It might make for good TV but it makes for poor investing.

Acceptance

It finally feels like we are in the acceptance phase of this decline which is the final phase. If my portfolio were doing better this where I would start stepping up my exposure on a scale. Unfortunately, my portfolio has been performing very poorly so I am just watching for now.

Survival is the name of the game and getting big when I'm down risks putting myself in the position where I might have to make forced sales. I have been there before and its a place I would rather avoid. Luckily, I had a great start to the year so I only turned it into a good year so far. Have a great weekend.

So Bad Its Good

The economic numbers cannot be dressed up as anything but horrendous. European PMIs in the mid forties speak of rapidly decelerating economies. There is both an upside and downside to these numbers. The downside is that if the Europeans do not deal with the issues facing them the economy will get worse. Finger pointing and talking is not working. Its time for action.

The upside is that an event like this might be just what is needed to get Europe into action. The only time the ECB or EU have acted has been when the crisis spun out of control and its currently spinning. The second benefit is that of sentiment. I spoke yesterday of how some sentiment indicators were refusing to fall into place. This is precisely the type of even that is likely to get the remaining sentiment  indicators into extreme territory.

I expect that the current action will eventually lead to a rally. I suspect that the fate of this rally will ultimately depend on how well the Europeans deal with their issues.