A year ago, we took off like a bat out of hell, and then we ran smack into what can only be called a bear market. We had the industrials crater, the banks give it up and the oils get crushed because of European woes, the latter being a total oddity, because oil never came in. The techs were awful, led by a faltering semiconductor group with a contagion that spread everywhere except for Apple (AAPL).
Once again, we have taken off with great gusto, the best rally since 1997, and it has been across the board, with the financials and techs leading the way and the industrials, such as Caterpillar (CAT) and Honeywell (HON), not that far behind,.
In fact, only the natural-gas stocks, because of the crash of the fuel, have been left behind, and it's been a real rip-snorter for 2011's big disappointments. Think Alcoa (AA) and Bank of America (BAC).
So it is absolutely reasonable that we have to question whether this selloff is the beginning of something big, a reprise from 2011, especially because, once again, Europe is staring us in the face, as the bond vigilantes, those who seek to bust the treasuries of country after country, circle around Portugal and can get away from Greece.
Can 2012 be that different from 2011? Don't we have to give up the ghost just like last year?
I say, not so fast. The world is a four-legged stool: Europe, the U.S., China and emerging growth. At the beginning of last year, the U.S. was doing nothing at all, dead in the water. Europe was doing well enough for the central bank to have raised rates twice. Or at least the central bankers thought things were going well enough. China, meanwhile, had to slam on the breaks because of worries of an overheated property market. And the emerging markets, from Brazil to India, had to raise rates, too, to break inflation.
Now let's look at the world. Europe, of course, is terrible, mired in a recession that shows no sign of ending. Some would say the recession is accelerating along with the mandated austerity programs. They seem to know only how to cut growth to balance budgets and not encourage growth to raise tax receipts that can also help balance budgets. A lot of this is the Merkel effect, as the whole European system seems to be hijacked by this woman so given to brinkmanship that we know the only way anything gets done is to be right on the precipice, a la Portugal right now, or previously Italy and Spain -- not that those countries' woes are resolved.
Europe's central banker has begun to undo the foolhardy approach of the previous regime, putting through a rate cut, and this lifeline to banks has allowed some progress to be made, progress that the likes of Caterpillar seem to believe that the economy can turn a corner.
The U.S. is actually enjoying a nascent growth spurt, led by oil and gas drilling, although the latter of those two is being threatened by low prices, as well as a vigorous auto build and a remarkable turn in non-residential construction. After last week's quarters, including commentary from Eaton (ETN), Caterpillar, Cooper Industries (CBE) and Honeywell, there can't be that much doubt of this resurgence.
We need employment growth in this country to turn around the last area of resistance: housing. But it can occur, and D.R. Horton (DHI), America's largest homebuilder, says it is occurring.
China? Not cutting fast enough. China is so important to everything from the metals and energy to tech to building and even to Yum! Brands (YUM), Starbucks (SBUX), Coach (COH) and McDonald's (MCD). We had hopes that this would be the year that China would step on the accelerator. Right now it is just tapping more lightly on the brakes.
The emerging markets, however, are cutting rates, and we are beginning to see some healthy signs in those countries, signs that have resonated in the quarters that we have heard so far in 2012.
Within our economy there is a bifurcation that totally confuses: We are both spending, as retail remains strong, and saving, as the data bears out time and again. Our blue-collar companies are hiring, since it is often cheaper to build here. Witness the chemical companies putting up factories in the U.S. to take advantage of cheap natural gas. Or the massive pipeline infrastructure we are building to handle all of our oil and gas finds. And, yes, the auto build, as verified by Ford Motor (F) on Friday, remains about as robust as we have seen in ages.
So we add it all up, and what we see is a mixed picture with Europe falling, maybe falling hard, the U.S. slowly getting better, the emerging markets struggling to improve, and China moving along just strong enough to not ignite inflation but not strong enough to be the world's engine for growth.
In that world, the bears who have been so absent this year now have a cause celebre: Portugal. They are going to be able to use that as a wedge to stop this bull market in its tracks for now.
Will we fall down the 2011 rabbit hole? I think it is more likely that we do very little and work off the overbought position that has plagued us since the year began.
Nonetheless, I see some cycles that can continue and boost us: aerospace, where the Boeing (BA) 787 Dreamliner is now in full-bore production mode, the autos, because our auto population is more than 10 years old, housing, because the housing stock is depleted, new houses are aren't being built with alacrity, and a lot of the so-called shadow inventory is just unusable, dangerous, without services and subject to being destroyed.
Under that scenario, what I see is a balance that could be tipped negatively by Europe; witness Honeywell CEO David Cote saying "all bets are off" if Europe goes into severe recession, or positively by Chinese rate cuts and a continuation of the bettering of the emerging markets and America.
All in all, that makes for a push for now without more information. It would be terrific if the Germans were to allow some inflation with growth, which would tip the scales bullishly immediately, but this selloff is about the opposite happening.
Eyes on the U.S. and China will tell the story of how long it will take to break out or break down from this range.
More from Jim Cramer: