Breakout

Stocks Rally Ahead of EU Summit This Weekend

Jeff Macke
Breakout

After spending much of the week rather violently confused, markets are storming higher ahead of this weekend's much hyped European Summit. The goal of the summit is to develop a specific plan of action for deploying the European Financial Stability Fund (or EFSF) in the manner most likely to ease eroding confidence in the European economy, banking system, and very concept of the Eurozone.

With the situation in constant flux, the market is expecting and hoping something significant will happen. Nesto reminds us that the unveiling of the plan is now set for next week on Wednesday, rather than this Sunday. The Great Weekend Summit has been downgraded to the "Wednesday Revelation." And, as my gloomy-gus of a partner offered, "a positive bank recapitalization plan is not the end of the problems for Europe or the greater global economy."

I see Nesto's point and wouldn't mind having a spirited debate on the idea of Europe ever being unified, given the enormity of the member nations' cultural and financial differences. The fate of the Eurozone, if not the whole EU is hanging in the balance at this weekend's summit. Which is important but not why need to pay attention. What makes the events in Europe important to you, regardless of your politics, is that the outcome impacts your wallet.

As an investor I have grave concerns about the global economy. As a trader the details of an EU plan matter to me not a whit, I'm just glad I'm catching the breakout. Market participants have become numb to the details of the Eurozone debate; they just want a plan. We're getting a plan and we're getting a rally without even knowing the details. That's not a coincidence.

Right now, many believe the world's financial system is unraveling at an increasing rate and there's no where to hide, especially in stocks. In the big picture, the doom and gloomers have a point.

But in the here and now, where good traders live during working hours, stocks have stopped going down and are finding buyers at higher levels. Europe is on the cusp of a plan more tangible than whining about Greece, and corporate earnings, while not great, are coming in strong enough to suggest the American economy isn't dead just yet.

One of the biggest challenges in trading is understand the worst-case scenario and staying bullish anyway. Stocks are going higher. They want to go higher. In my experience fighting these types of rallies is a recipe for personal financial catastrophe; a prospect more harrowing than whatever eventually happens in Europe.

Pay attention to this weekend's EU summit, the ramifications will play out in the global markets next week.

Let us know your thoughts in the comment section below.

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