As you all know I have had a bearish tone since mid-January.
The market had moved into a short-term overbought state, excessive optimism had pushed into the market and seasonality had entered a historically bearish.
And over the past several weeks all of the aforementioned have pushed further and further into a bearish state.
But, the bulls have [...]

The market has started the year off on a positive note. It has not had a down day is January 13th and there have only been two down days all year. Yesterday, stocks looked tired and the trading range was very narrow. Overnight, the flash PMI for Europe came in at 50.4 and that was much better than expected. It is back above the expansion level. The news is good, but I would not get too excited about one data point. Months of economic releases point to a recession in Europe. Greece has still not reached an agreement with private investors.

The overnight news was fairly light. Italy auctioned six-month bills and the demand was good. European banks will embrace shorter-term maturities since the default risk is low. This landscape could change tomorrow. Thursday, Italy will auction ten-year bonds. This is the first longer-term bond auction since the ECB granted unlimited three-year funds to banks. The ECB will support the auction, but I believe banks will be very passive. Interest rates will move higher and the market will get nervous.