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Hang Back for This One

Normally, I am the first to embrace the "P/E of Bristol Myers" argument. I say "normally," though, because all last week I said I was willing to miss the last couple percent of this rally because of the parabolic moves that so many stocks have made, and that I wanted to stay away from the almost-daily new highs and cycle into less elevated stocks.

Still, I would be wrong to say I saw this one coming, and that's a real danger, because if you didn't see it coming it is hard to say, "OK, now this is what I have been waiting for." I was worried about a Fed-induced correction, and now if you buy Monday you have to be worried about a double-whammy come Wednesday.

In other words, after the run we have seen in the market, we were due for a negative event, and I fear that event could be a one-two punch of both Cyprus and the Fed.

Let's pull these two apart, though, and make some sense of them as distinct entities, and then overlay them on the charts that I studied this weekend.

First, I think Cyprus has a rogue banking system. I don't like the idea of making smaller depositors pay anything, even though Cyprus had offered a juicy and unsustainable 5% interest rate on deposits, which meant that the whole banking system was like that of the hot-money-seeking savings-and-loans banks from the S&L bailout era. That's when the certificate of deposit rates varied widely, and the weaker banks paid through the nose to get deposits. Many of them ended up failing when that hot money departed.

That's how the Cyprus banks look to me now. You would no more blow out of your own local bank because of that S&L crisis than you would take your money out of Santander (SAN) because of Cyprus. We did see huge bank runs in Spain during May of last year, but that was forestalled by the government, and then later by the "by any means necessary" words from the European Central Bank's Mario Draghi.

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Chart of I:DJI
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