There's two things I'm hearing a lot about. The first is the triangle formation in the chart and the second is the notion that the ECB will be end up having to print money to end the crisis once and for all. Let's focus on the second issue first because that's far more important. I've been saying for a while that ultimately we need to see the entire restructuring of PIIGs debt before all is said and done. The cancer needs to be cut out from the system. For a while, European authorities were in denial about the crisis thinking the problem was one of a lack of confidence as opposed to the grim structural reality which is that these countries have dug themselves in a hole too deep. They figured if they took care of Greece confidence would be restored and all would be well. They tried to pay for the solution as cheaply as possible ...and they got what they payed for. As this crisis has been unfolding the market has been dragging Merkel and others by the collar kicking and screaming forcing them to take further action. It wasn't too long ago whereby a Greek default was considered out of the question and now we've esssentially seen it happen via the 50% haircut. Now the Germans are saying that money printing is out of the question. In fact, a few minutes ago on BNN I saw a quote from Merkel that said she believes the ECB acting as a last resort won't solve the crisis. If she was such as expert as to what will and what won't solve the crisis why the fuck has she not solved it yet and why does it appear to be getting worse? Merkel has her head up her ass just like she did with Greece a couple months ago. It's seems to me that it's either print or see messy defaults and a break up of the Euro zone.
As far as the market goes, we are finally starting to see a breakdown from the widely watched triangle which according to textbook t/a should have resulted in an upside breakout. Since everyone is a technician now a days, you can toss the textbook out the window. And who knows, maybe this is a downside head fake to foil the technicians. I wouldn't play that game of chicken though given that we are seeing bond yields blow out in Spain and France. One thing the bulls have in their favor is that the put/call ratio continues to be high day in and day out and the VIX is well above 30. This suggests that if we see the market roll over and make a run for the October lows, there's a good chance it will end up being part of the bottoming process as opposed to a new down leg. It could also mean that the short side is still too crowded and this dip we are seeing today is going to end up being a massive head fake. Either way, I'm still stepping aside. I didn't see enough sentiment indicators give me the green light to make a short bet and so if the market tanks I won't be on board. I don't have a problem with that unlike in early October when there was in fact enough sentiment indicators lining up to give the green light for a trading buy but I never pulled the trigger.
What I haven't liked about this rally since the recent bottom in October has been the high volatility and now the oil spike to $100. The last thing the global economy needs is oil back to $100. I couldn't give a fuck about seasonality and Santa Claus rallies, fundamentals and market action trump and neither suggest this rally from the October lows is the start of new bull run and so if you play the long side you're playing a game of chicken with the bears hoping to that they'll blink before you do. The problem with this game is that once the bears are shaken out the market will likely drop abruptly leaving you the risk of being trapped holding the bag. There's two ways bears tend to get shaken out 1)by a strong rally or 2) covering way too early on the first dip of a major downside move.
It's been frustrating being on the sidelines for so long. I am however starting to see some emerging bottoming formations on a few small cap stocks I have my eye on that have attractive fundamentals. I'm in the process of making a short list of such stocks.
In these types of volatile, headline driven markets, protecting your capital is paramount. While it may seem likely that this rally from the October lows will fail, there's no telling if it will fail now or a few months from now and so if your betting on the downside you could easily see yourself get stopped out for losses because too many people were in the same trade. After all, the bear case regarding Europe is no a secret and because of that, I believe the bears have been their own worst enemy and the cause of their own frustration these past several weeks and not the "PPT".
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