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Today was interesting. We gapped down hard on fears of Greek default and French bank downgrade risk. At around 2:40 pm the market started to bounce on a Financial Times report that China may step in and buy Italian debt. This gave the market a bid, and we were off to the races. Always remember this is a headline market and gains can be turned to losses on one piece of news in a heartbeat.
Here’s the rub and the reality. The Prime Minister of Italy mentioned a month a go that he was in talks with China to encourage investment in Italy. This was a semi rehash of older news, but the market is so herky jerky that any perceived piece of good news will be construed as a cure and the short sellers ran to cover.
We’ve seen this movie before (remember last week?). I am agnostic here as always and we may have some follow through tomorrow to the upside, but we need to be careful. I covered shorts in CF and DLB today as a result of the short covering rally, as I wanted to see how the market reacted to this China news. It ended up being a smart move in hindsight, as both stocks rallied higher. Sometimes you get lucky.
Please note that this is a treacherous market and is really unlike anything I have seen in a few years, so take it slow, trade smaller until we can catch a trend that we can hang our hats on.
Watch the financials as I think that will be a good tell for future direction this week. XLF