It is interesting to see that the S&P futures rallied 3.5 points in the 15 minutes after the cash close. It gives me a hint that fast money traders are well hedged already and it will take a really bad news event to take us much lower. The high put call ratios in the past few days confirm this. I initally thought we would have a waterfall decline this week but the price action doesn't agree.
Some will view the weak closes in the last 2 days as bearish. But that is only if we get continuation and gap downs off those weak closes. Today we gapped up off yesterday's weak close. If we gap up again tomorrow, it tells me that we're probably not going down much more on this downleg (1130-1140 zone at the most) and we can rally for a few days afterwards, perhaps to 1210. If any rally up to 1200+ is due to good news from Europe, I would look to short that rally.
I still don't think we've bottomed because we still haven't got that Greek monkey off our backs. Only a default from Greece can get the purge that this market needs and get rid of that monkey. And also get rid of the fear that a Greek default would be like a Lehman bankruptcy, which is I believe to be completely false.
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I think you are more right in being concerned about Dr Copper and China rather than Europe at this point. Having just been in HK/China last week talking to companies what is coming down the turn pike isn't pretty. The slowdown has been fast, i.e. 12 weeks ago still humming along, but then credit got squeezed hard, orders slowed, construction sites froze. Long the dollar versus commodity currencies still seems the easiest trade.
The China real estate bubble is popping. The Chinese banks are in deep and have a ton of bad loans on their books which if marked to market, would force them to raise capital. But since China is a communist country, I am sure the government will just print money and make those bad loans disappear at the banks.
The way the lend worked in China for reference was in 2008/09 govt told banks to lend so they lent to state owned enterprise (SOE) who then just put the money back on deposit with the bank. But given the negative real rates that cash was burning a whole. So the SOE's started charging 10-12% and lending the money to their customers / supplier / and real estate. What is going bad is the loans made by the SOE's to the govt will bailout the SOE's rather than the banks.
So with the money they loaned from banks, they reloaned out the money to customers/suppliers. So they still owe money to the banks which the banks will not get if the SOE's go bust. But since the government will bailout the SOEs, effectively they are bailing out the banks.
In any case, it is going to be put under the rug with massive yuan printing at the central bank in China. This will just be Chinese savers who are already getting burned with high inflation and artificially low interest rates to foot the bill. And inflation will continue on. All roads lead to inflation in Bailout World.
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