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Enjoy the Rally while it Lasts...

Written By Brian Hicks

Posted November 28, 2011

We’re literally sitting on the edge of the abyss… and we’re rallying.

Sure, La Stampa reported that the IMF is preparing a 600 billion euro ($794 billion) loan for Italy…

But the IMF denied the rumor.

Using US funds for a European crisis is political suicide. It’s not happening.

According to a Reuters report:

An IMF spokesperson poured cold water on a report in the Italian daily La Stampa that said up to 600 billion euros could be made available at a rate of between 4-5 percent to give Italy breathing space for 18 months.

“There are no discussions with the Italian authorities on a program for IMF financing,” an IMF spokesperson said.

Here’s the reality.

Time is running short for the euro. According to Art Cashin:

ICAP, the currency trading facilitator, said it is testing its systems for a return to the drachma or even the Deutsche mark. Italian PM Monti admitted that the breakup of the Eurozone has been broached at meetings with top leaders.

We’re also rallying on “oversold” conditions, according to the pundits.

The only traders operating in a world where the market is “oversold” are delusional at best. These are the people who believe we’re “owed” an up day because we’ve been down so many days.

We’re not oversold… not even close. We had a small downdraft on news the EU is imploding; that the banks are insolvent; and that the currency is most likely doomed.

And now it’s rally time?

Truth is we’re still deeply overvalued. The markets, in no way, are pricing in the financial chaos that lays all around us. There is no bailout. The euro is doomed. We’re not oversold. And no, Black Friday sales were not up by 16% this year – another ridiculous reason for this rally.

If you want to make money in this market, prepare for downside with DIA, SPY, and QQQ puts, and calls on the VXX. Only the delusional think all is well.