Europe Capitulation

Europe has been the source of the weakness lately.  It is not China, which is what the fund managers want to blame, because they are long Europe.  It is the European banks, which are acting like garbage, with CDS surging higher, although still at low levels.  I would be a buyer of this weakness as we are in the lower end of the range, and we've got Yellen coming up later this week which should help stocks.  Even though she likely will repeat the same old lines with a comment or two about recent market weakness.

The top for this bounce move off the January 20 low is still ahead, although getting closer and closer.  After this capitulation, we should head higher, in choppy fashion into opex week ending February 19.  Usually the market makers and institutions have a vested interest in keeping the indexes afloat till opex, especially when there has been a lot of put buying.  But after opex, and with less put protection, we could see another big time plunge in this vulnerable market, taking us down to ES 1800.

The evidence continues to mount that we are in a new type of market, a much more bearish one than the one we saw in Aug/Sep 2015, and definitely more bearish than any year from 2009 to 2014.  A healthy market doesn't spontaneously combust into a big gap down after a previous big down day, like we are seeing now.  This is bear market stuff.  It is something you rarely see in a bull market.

That being said, there is a timing for everything, and the timing seems too early for a resumption of the downtrend.  So, I am getting long the weakness here, expecting higher prices in a few days.  Good risk reward on the long, although we are in a bear market.