Rumours are out that Italy is about a receive a 600 billion euro bail out from the IMF. The risk markets all gapped up, from Copper to Euro and from S&P 500 to Aussie Dollar and Crude Oil. I'm not buying the news. I do not think IMF has that much money. Last I heard they had about 300 billion Dollars at their disposal. It seems the politicians are panicking now...
Yes, the markets are extremely oversold and yes, you shouldn't engage into any shorting activity right now because risk to reward is very skewed unless we have a full blown crash. But at the same time a decently large gap up in Asian mornings usually spells trouble as the market pulls back majority of the time, so don't rush into anything just yet.
On top of that, a massive 2% gap up on Monday morning during extremely oversold markets in the middle of a European crisis is a perfect recipe for the bulls to get taken to the cleaners. This reminds me of of April 2010, when Greece was bailed out for the first ever time and the Euro gapped up. Few weeks later we had the final climax crash and eventually a real proper bottom.
This is a sling shot rally from oversold conditions based on hope and the gap is massive. If, and I say if because I do not know what will happen, but if the IMF doesn't come through with the deal and Italy's bonds spike above 7.3%, the sling shot could revert back towards the other side with twice as much force. Be careful here!