A few thoughts as we continue to criss cross the equity market range.
My lofty expectations for a classic capitulation and turn-around Tuesday were passed over for what appears to be six more weeks (days - hours?) of winter, or whenever the European political channels breakdown - and then mysteriously find their respective pigeons deep inside the trenches. A crisis such as this will inevitably climax in a panic. The question is will it open another leg lower - or just a brief exploration beyond the technical range. At this point, I have dropped a touch of the bullish bias I had with regards to the range, because we have yet to experience the psychological closure the market needs to find any lasting traction. It is disconcerting in the sense that there is a tangible deadline set for early November and we have yet to even enter October. Too much time within the range could work in the bear's favor for eventually breaking through it and adding another leg. Color me agnostic in the very short term, but spiritually bullish if and when the euro's grim reaper reappears.
I have little doubt that the EFSF will not be levered up to the degree it has been hinted at, despite the claims of repulsion by Germany's finance minister. As I have stated before, it is just political theater and he needs to act the part, especially considering Merkel's fragile party grip. The fact remains there really is no realistic alternative that will address the severity of the banking issues associated with the sovereign debt overhang.
It is interesting to note that when I consider the respective pieces that need to come together to resolve the crisis and the potential issues that could upset the already weakened apple cart, I am very much against taking on equity exposure here. That is also the case when I apply traditional TA to the charts. However, the main driver for me to lean more bullish against the conventional analytical wisdom is when I compare previous market environments (aspects of late1998 & late 2002) to the one at hand - and knowing how far back the sentiment band has been stretched with considerable capital powder. It is between these poles that I will continue to be opportunistic in the short term and look for opportunities over the long term.
As in 1998, the S&P 500 has led the Russell 2000 out of the retest we had last week. However, it should be noted that the spike in the gold/silver ratio has been flattening out as we move through the back half of the week.
As always, it is a very fluid situation that can change on an hourly basis - so stay frosty.