We started the week quite hopeful. Political progress had been made in Italy, the technical picture looked good, and positive seasonality was about to kick in. But market players were skeptical and underinvested, which made for a good setup, but we just couldn't shake off the giant nuisance that is Europe.
The market fell out of its base Wednesday and Thursday and failed to bounce back today, simply because so many market players are worried that nothing positive will come out of Europe.
In addition, the deadline for the Super Committee to strike a U.S. budget deal is approaching and there is concern that we might see a repeat of the contentious budget debate that led to the formation of the committee in the first place.
Technically, it would have been better if we had held the 1220-1225 area of the S&P 500, but we didn't suffer too much damage. We are still above the 50-day simple moving average around 1207 and haven't fallen into a downtrend yet.
Market players are not well positioned for upside. When there's any sort of positive news, they pile in and try to play catch up. It is worse because so many are lagging the indices and trying to catch up with benchmarks. It is a big game of chicken where we battle back and forth, wondering if all these obvious negatives are going to matter.
It makes sense that we should be cautious, but that is exactly why there is such good potential for a strong move to the upside. If the market decides to ignore the negatives, there are an awful lot of folks who will be very worried about being left behind.