The way I look at it right now, we are stuck in a broad trading range of 1250 to 1050 on the S&P 500. I don't think we can break above 1250 without Europe coming up with a long term solution to the sovereign crisis there, and I think that can only happen with fiscal consolidation, which will likely take years to fully implement (assuming they can all agree to actually do this). However, I don't think we can break below 1050 unless Europe actually blows (e.g., Greece default and/or European bank failures / financial crisis)...
As the market gets close to the bottom of the range, as it did about a week ago, it becomes very oversold and very difficult to break through unless European blow up actually occurs. So once we breach 1100 on the S&P, unless we continue to get horrific news on a near daily basis to keep pushing it down, shorts get nervous and start to cover. Why? Because at 1100, stock are actually really cheap if Europe ends up being ok. On the flip side, once the S&P gets above 1200, the risk reward of staying long gets weaker and weaker and it is much easer for a headline to cause a sell off that snowballs. As the market climbs closer and closer to 1250, the shorts pile in because they are pretty comfortable that there isn't a lot of upside if they are wrong, at least as long as the European overhang remains.
So the bottom line is, until Europe finds the ultimate fix, or until it blows, we are likely stuck in this range. And it could last for years as Europe continues to kick the can down the road in 3-6 month increments without solving anything. So when S&P gets close to 1100, start buying / scaling in. When it gets above 1200, start selling, scaling out. I've been doing this for the past 2+ months and it has worked well and I don't see the pattern changing anytime soon.
Don't get all emotional with fundamentals and the market is crooked / frauds, etc. If you stop and think about it there is some logic to it all. The craziest thing is how quickly we are bouncing between the ends of the range, in days what would normally take months or even years. That's volatility for you.