Are we kicking the can down the road to only to have major disappointment in the months to come? We are first and foremost technicians; however, in our proprietary analysis we do overlay global macro risks. Back in August we wrote an article saying nothing has changed. Here we are three months later with a $1.4 trillion band aide to address the crisis in Europe. It will take some time before we know if the rescue package will stop the contagion throughout the EU. My thoughts are you can’t fight gravity. The issue still presses that many of the EU countries are on the brink of insolvency, with little hope of working their way out in the longer term, only to restructure in the end.
So why hasn’t there been a faster resolution to this massive problem. Unfortunately, there is no easy solution. It will be a volatile, slow and at times painful deleveraging of sovereign debt, which has been a result of overspending and borrowing relative to GDP.
For those readers who have been reading our articles, you will recall our chart of the cycle of human behavior relative to investing. The markets during extreme periods often look at situations in a binary outcome, "pass or fail". The markets had hit their maximum point of pain on Oct 3rd, anticipating EU contagion and complete failure of the banking system in Europe.
See chart below. For our Free S&P 500 E letter visit www.thechartlab.com
We have since rallied close to 170 points off the lows on the S&P 500. But the question in every investors mind should remain.
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