The European situation with Italy's 10 year bond yields spiking over 7% plus the mess in the Greek parliament, which still doesn't have a new prime minister, caused investors and traders to panic.
Europe needs to get its act together fast and launch a massive bailout package (like TARP) and start their own QE program in order to get over this situation and avoid a sharp deleveraging. Weakening the Euro and generating inflation is a less harsh way to pay down the excessive debts. This will also stimulate exports and tourism which improves the balance of trade and bolsters GDP and employment.
Selling in the market was with high breadth and volume making the ARMS Index (TRIN) reach a historical high.
In one of the few times in the last 50 years, this index spiked over 6 and reached a reading of 7.22 showing that declining issues participation overwhelmed advancing issues.
Despite the strong selling, historical stats show that a month later after the ARMS closes over 6, the market is up 100% of the times with a median gain of 6%. These stats are from the site Sentimentrader.com
Volume in most indexes was higher today and the uptrend that started in October is still valid but strongly under pressure.
However, the S&P 500 and the Nasdaq Composite held important technical levels and still trade over their breakout points from the August to October consolidation.
One chart that I'm paying close attention is of the QQQ. This ETF that tracks the NASDAQ-100 represents in my view the best of America and capitalism. Innovative technology companies that add value to the world. Despite all the Euro Zone problems it has held up nicely and it is once again near an 11 year high at 54.00.
Yesterday we got near the highs. If the market manages to breakout with decisive volume I think a new Bull Market run will begin. Under invested mutual funds will start to chase performance and investor sentiment will become more bullish toward equities that are at historically cheap valuations and cheap if compared to treasuries.
It will be impressive if we see such a breakout amidst the grim Macro situation in Europe coupled with slow growth in the US.
For tomorrow there are some Macro releases and Bernanke will speak at 11:45 AM.