There are often scenes in crime dramas where the bad guys are put in the interrogation room and vaguely questioned over a drawn out period of time. The villain gets so anxious about the potential outcome that he freaks out and confesses the murder. I feel like market participants have reached that level of anxiety and impatience. We know that things are bad, but we just want the market to tell us how bad they are. Instead, the market has been range bound for two months between a relatively tight level of 1120-1220 with very large moves up and down:
The perverse aspect of this range bound market action is that the longer the market creates anxiety in investor/consumer sentiment, the more negative the actual economic outlook. If you believe things are going to fall apart at any given moment, then you are less likely to upgrade the kitchen, buy a new car, or hire an additional worker. Nothing has actually changed in Europe since mid 2010 as the debt-holders have always known that Greece would have to default in one fashion or another. In other words, I think the initial pessimism was overblown going into the 2011 European crisis because the problem was already well known, but as the indecision in the markets continues on, the pessimism gains better and more valid traction.
What signaled a truly negative shift to me was a sell off in all assets – copper, platinum, gold, silver, Australian Dollar, Norwegian Kroner, Canadian Dollar, Korean Won, emerging markets (bonds and equities), etc. that happened abruptly since September 20th. This was not a modest sell off in equities, it was a major sell off across the board in everything that was not a US Treasury bond. I am extremely hesitant to say that today marked the bounce off the bottom.