From Peter Tchir of TF Market Advisors
So we get an early start to the Europe goes home rally?
Since by now even my mother knows that US stocks rally when Europe goes home, it only makes sense to rally well ahead of it? It has become too well known that this trend exists and as others have also mentioned, when those simple rules break, they often break ugly. I would be very careful betting that we get a rally when Europe goes home.
Obama delivered an interesting speech. What gets implemented and what it actually accomplishes, are in doubt. The G-7 is unlikely to unveil any grand plan over the weekend. The Fed and ECB have spoken and have failed to help the market. If anything, dissent within the ECB about can be done is growing and their need to support distressed banks longer, is frankly, distressing.
We may get another big rally from here, but if the primary basis is that Europe going home will help, I think that is more than priced in. If it is because we have bounced before and keep trying to get to 1,200, that may be true, but it took several iterations this spring to finally break 1,265. This may not be the start of the move that brings us to new lows in stocks, but I find far more compelling fundamental reasons why stocks should be back to their August lows. And yes, I believe fundamentals include macro reasons.
Finally, it does seem like a lot of hedges were taken off by the "active traders" (sounds better than "fast money crowd"). The market is far less short and many seemed to have bet on a sustainable year end rally to save their returns.