After Last Week, Care To Test The Market Waters?

By Brian Sozzi

The market sure looks like a tempting place to dive into today, doesn't it? Both the S&P 500 and Dow Jones industrial average are up nicely, considering the rout that ensued last week ($1 trillion wiped from U.S. equities). Stocks are starting to be viewed as cheap, which is different than saying they are cheap; viewing stocks as cheap triggers upping risk in the portfolio.

Still, something doesn't feel fine and dandy. There is this nervousness that has become entrenched in the market that a negative development is only right around the corner. As we have been fully trained to expect by now, those negative developments are greater than a weak print on an economic report or a poorly handles speech by a liberal president, they could be worrying enough to danger the global financial system.

What's being discussed to fix the Greek ruins:

• 50% write-down of Greek debt.
• Increase in the EFSF to $2.7 trillion from a mere $440.0 billion, done so by an agreement that allows the ECB to lend alongside the fund.
• Strengthening of Eurozone banks.

So to answer the question "Is all well?" I would have to say let's not get ahead of ourselves. There is a template forming on the actions likely to be taken to save the EU; that is undeniably good. An announcement of a coordinated action plan is step number two, and that would likely represent a good buying opportunity for stocks as a sense of certainty will have arrived on the scene. Until then, it continues to be touch and go for risk assets, meaning a news-driven backdrop where rumor assumes the leadership position over valuations.

Survey of Last Week's Carnage

As I noted above, last week was disastrous, and came on the heels of a solidly up week. Here is a run-down of how bad things were:

• The Dow had its worst week since October 2008.
• Gold had its worst week since 1983.
• Silver had its largest single-day decline since 1987.
• The Dow finished 18% below its late-April peak.