"All this reminds one of the autumn of 2008." --Deutsche Bank CEO Josef Ackerman
After the weak action and ugly close Thursday, we probably shouldn't be surprised that we have another "Europe is saved!" bounce this morning. The pattern of this market has been that after a bout of worry that Europe is going to fall apart, we have some sort of announcement that a fix is being developed. The cure is never implemented and a host of new problems arise, but the doubt and skepticism about solutions set the stage for another spike on the next announced solution.
This pattern has played out dozens of times lately and the reason is that very few folks have confidence that the problems in Europe are going to be cleaned up soon. Many believe it is just a matter of time before the European Union falls apart.
For now, the long-range health of Europe isn't our major concern. All we need to know is that pattern of quick spikes on announced news is alive and well. The problem is that these spikes don't typically last long and we have to see how fast this one fades, but you can be sure another solution will be forthcoming as soon as things start to look dangerous again.
As far as "Europe is saved" rallies, the action this morning isn't very impressive. We are well off the early highs and the skeptics are already tearing into the latest "solution."
I've been anticipating a "sell the news" reaction to European news, but that occurred quite aggressively yesterday when we had some bad news rather than good news from the European Central Bank. We are seeing more "sell the news" this morning, but now that the main European news is out, I'm looking for the market to shift away from the intense focus on the headlines. If we can ignore Europe for a little while, it is a great time for individual stock-picking action. Market players need end-of-year relative performance, and if they start chasing some beta in individual stocks rather than playing leveraged index exchange-traded funds it would make for a very nice change of pace.
I continue to feel that market players are not particularly well positioned for upside and that is going to help the bullish cause. The recent rally was not embraced with the usual bullish euphoria you'd expect to see when we have a move of that magnitude, and the moaning and complaining about the poor technical action has been quite loud. The hot money momentum players have had very little to do and they are hungry to go to work.
We'll see how well we hold this early gap, but more "sell the news" action wouldn't surprise me. The good news is that the technical pattern for some end-of-year strength continues to develop. It's just a matter of putting cash to work.