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Is European Crisis Fatigue Becoming Bullish for Stocks?

Jeff Macke

Today it was reported that unemployment in the UK is at 15-year highs and Spanish, French and Italian bond yields refuse to move significantly lower, regardless of ECB intervention. Stocks should be lower, but stubbornly refuse to break. Does this mean the European meltdown is "the new normal" allowing the U.S. to focus on our slightly better than expected earnings and economic news? At long last is there enough "crisis fatigue" to let us buy stocks in good conscience?

To help answer these questions and more Breakout turned to Minyanville's Todd "Todd-O" Harrison, author of The Other Side of Wall Street. Harrison, who freely describes himself as a longtime bear, suggests the market may be buoyed by a delay in Europe's eventual collapse. "A lot of things can happen; not many of them are good but most of them will get us through this phase," Harrison says.

Having known Harrison for the better part of a decade I can say with certainty that his "get us through this phase" is the equivalent of another man's "Buy 'em, Baby!" But he's more cautiously guarded.

"Be careful of the the fatigue factor because it's lulling you into a false sense of security," says Harrison. In his view, the market won't be able to shake off a collapse in the anger of the populous forever. "Social mood and risk appetites shape financial markets," he says. And eventually markets are destined to break lower.

Europe seems to be heading towards measures that will lead to austerity, belt-tightening and other traditionally bearish situations. By this thinking, Europe coming up with a coherent plan may be the worst thing that could happen to stocks.

This doesn't make Harrison a bear, just a trading long. Along with the rest of the civilized trading planet he's watching S&P500 1,220 and the KBW Banking index (^BKX) at 40 as critical support. Unless those levels break he's sticking to the long side while "trading small and keeping risk tighter."

Another cautious bull in a tape seemingly full of them. Is he right? Am I right for having a slightly more aggressive version of the same plan? Are you fading all of us and shorting like crazy every time the market dares to go green? Let us know in the space below or hit us up on our new Facebook page!