Last week witnessed a sharp wush lower in global equity markets together with a sudden reversal of market sentiment from extreme optimism to extreme fear.

Coming post our mid-April "pi date" window related back both to the events of 9-11 and the last major February 24, 2007 pi cycle entropic reversal in mortgage spreads (pre-sub Prime crisis), this was not entirely surprising to us, but oh-so-irritating to actually benefit from. The prior advance was just so relentless that when the bear move finally arrived, it was like the police knocking on the front door long after the market's crime against common sense had been completed.

Given the extreme shift in market sentiment, and when looking at portfolio manager behavior on Wall Street, we are reminded of a bunch of 5-year olds in a sandbox -- all desperate to get their hands around some sort of trend -- some bullish, some bearish -- throwing sand at each other. In the end, no one is very happy. As the old saying goes, "Wall Street is a street with a river on one end and a graveyard at the other" -- but also perhaps a silly playground filled with much angst and tears in the middle.

At present, we believe that a bigger-picture topping process for the market has begun. But that does not mean that the market will trade straight down. Instead, and much to the contrary, we would not be surprised to see the April highs ending up as just the left shoulder of a larger topping formation to transpire over the coming few months. In the end, we now see a "big picture" pattern likely to resemble something along the following lines:

We base this view partly on the extreme negativity in Europe at present (stats like only 2% bullish sentiment on the Euro) that should abate in the short-term, even if bigger picture problems linger, and will resurface down the road.

It is time to basically be flat, and patiently await renewed market strength to sell into. Marginal new highs above those of April would be a perfect potential set-up to hook trend-followers and frustrate those who got stopped out of longs last week. We will be selling to folks jumping back into the market then; not pushing our short bets right now.

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