Forget any overly complex and meandering explanation you have heard about today's market action. The real reason for the bounce is simple: oversold market coupled with yet another short squeeze (NYSE Group biweekly short interest data showing shorts spiking in the first two weeks of November due out today). Art Cashin explains.
Sitting On The Edge - We have been saying for weeks that we, along with Secretary Geithner, are concerned that European leaders have no mechanism in place to handle any sudden acceleration of the crisis. Basically, there is no financial fire department and no sign of one being hired.
Moody’s and others are indicating that time is running out and it may be a matter of days. ICAP, the currency trading facilitator, said it is testing its systems for a return to the drachma or even the Deutsche mark. Italian PM Monti admitted that the breakup of the Eurozone has been broached at meetings with top leaders.
This morning European stocks and U.S. futures are spiking sharply. The pundits are trying to pin the spike on everything from Black Friday sales to an IMF bailout of Italy. We think the spike is the reaction of a very oversold market to the resurfacing of the Sarkozy based rumor of a treaty deal for fiscal linkage. But, even if it’s true, can it be implemented quickly enough for a situation thought to be days away from crisis or climax?
The IMF bailout, already denied, was always unlikely since the U.S. is a key player in the IMF. Using U.S. funds for a European crisis is unthinkable in the current political environment. As to Black Friday, look what was said about last year’s Black Friday last November. Also, how could it help Europe so much?
Lastly, European bond markets are more placid and skeptical than their equity cousins. That supports the oversold causation thesis.