As bond yields approached and played around the 7% mark on Italy and Spain respectively, once again politicians began to yield. At the end, it was basically Angela vs the world. The rules on how the ECB will keep injecting liquidity into the banking system of troubled countries have been loosen up a bit. The market has received with open arms the ECB meeting output and it's cheering for now. It has been proved once again that the bond market is the boss. Everybody starts to yield near 7 MPa of pressure (just above 1,000 psi). As a matter of curiosity, that's around half the yield strength of human skin.
"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
- James Carville, political advisor to president Clinton
Almost all market conditions and technicals were ready and set to run hard to the sub-1280 levels right before the meeting. Many of them are still present. But, even though this was not a bazooka shot, I think it is a game changer. Is it the end for the bears on the short term? It's difficult to say, but my hypothesis about going back to 1,266 or 1,250 seems farther to reach today than yesterday. It's possible that we will not be able to buy again at those levels for a while. We will see about that.
The important thing here is not to loose focus on the long term horizon. The printing virus will slowly proliferate around the world. As I pointed in my previous articles, I've been buying undervalued stocks on panic dips, and I sustain that strategy is better than trying to trade on short-term speculation, specially when the stress is so high, as shown by the bond market. No matter the conditions, you don't fight the central banks. It's no time to be a perma-bear, even if the economic data doesn't look right.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.