Friday, December 9, 2011

Conditions were good for a sell-the-news reaction to highly anticipated news from Europe, but I thought we might see a little better upside before the profit-taking kicked in. A flurry of European rumors at the close added insult to injury and we ended up going out at the lows of the day.

It was an all-around ugly day, but the question now is whether this is a healthy pullback or the beginning of a downtrend. In November, we had a very similar setup and we were pounded when the news flow out of Europe stayed ugly for days. If the European summit over the next few days doesn't give us something to be optimistic about, it is going to be quite challenging.

Market players are already poorly positioned for upside and days like today only make it worse. If we can put a Band-Aid on Europe for a little while, I expect to see the focus shift back to adding long exposure for end-of-year relative performance.

If we have further weakness on the summit, I suspect many traders would be inclined to buy, as I believe there is going to be an endless stream of European solutions and ideas that will prevent the bears from taking hold of the action.