Since the market peaked at 1150, we have seen classic “sell the news” reactions to the earnings reports of Intel, Apple, and Cisco. Take a look at this hourly SPX chart (click to enlarge):

The proper course of action all three times was to sell, sell, sell into the euphoria. On Wednesday, the market rallied into the bell in anticipation of Hewlett-Packard’s earnings. If you bought into the euphoria, you didn’t pass the IQ test. In fact, you just might be a clueless newbie who is about to be clubbed like a baby seal.

On the other hand, if the market is able to advance on Thursday, then that might be an indication that we have a change of character where good news is good news again. And that would be a strong hint that we are back in bull mode.

On Friday morning, I wrote:

“Short-term breadth is stretched to the upside and will very likely decline today. In this situation, a flat day would be a win for the bulls.”

And that’s exactly what happened. Breadth unwound on Friday, but the bears weren’t able to score any points, and the bulls took the ball on Tuesday. But now breadth is stretched again. NYSE breadth closed at +2,000 yesterday, and the NASDAQ is similarly extended. So, the same deal applies: breadth will almost certainly decline, but if the bulls can keep the market at least flat, they will win. If the bears haven’t been stuffed and mounted, this is a spot where they need to make their move.

Twenty years ago, an un-patriotic, socialist co-worker triumphantly threw the Maastricht Treaty in my face. “Ha!”, he gleefully exclaimed, “The European Union’s economy will be bigger than the USA’s!”

I scoffed, and said: “The EU is just a bunch of socialists merging their bureaucracies.”

If only I could remember his name so that I could look him up and put a little of the old Grecian smack down on him. What a spectacle those socialists Greeks are; going on strike with their thumbs firmly stuck in their mouths, demanding that the hard-working, thrifty Germans bail out their pathetic socialist-splat of a nation.

But who knows? Maybe something good will come out of this after all. Maybe socialism will finally be discredited just like communism went “poof” when the Berlin Wall came down.

It’s curious that the Germans are once again at the center of this potential ideological sea-change. But will they save Europe? Here is what STRATFOR thinks:

“The only way for Germany to matter is if Europe as a whole matters. If Germany does the economically prudent (and emotionally satisfying) thing and lets Greece fail, it could force some of the rest of the eurozone to shape up and maybe even make the eurozone better off economically in the long run. But this would come at a cost: It would scuttle the euro as a global currency and the European Union as a global player.”

So it seems to boil down to whether or not the Germans want to remain a global player via their EU vehicle, or step down to regional-power status. What will they decide?

This latest Dubai crisis is even worse than the first one. I’m thinking that The Sharia isn’t all that well thought-out.

The “bear boat” that I mentioned yesterday morning did indeed get dunked on Thursday. So, it is likely that much of yesterday’s action was short-squeeze buying by dumb-money traders like the ones on Fast Money. We had the same type of action on February 1st and 2nd: sharp rallies on declining volume, which are the tell-tale signs of a bear flag.

Was SPY’s declining volume on Wednesday and Thursday the result of the blizzard, and the approaching holiday weekend? I don’t know, but I’m not terribly impressed by this bounce. A large, unfilled, emphatic gap-up this morning might win me over though.

Nevertheless, if the SPX, DIA, and IWM can stay at least flat today, they will print bullish-engulfing candles on their weekly charts. Also, the XME closed above its February 4th down-gap. It is the only major ETF to close above the “Feb 4″ gap, but the IYT is close. If the IYT, or any other major ETF, can close that gap, I will be suitably impressed.

Short-term breadth is stretched to the upside and will very likely decline today. In this situation, a flat day would be a win for the bulls.