When push came to shove, Germany and France just didn’t quite see eye to eye and walked away from the table. Germany feels the private sector, the banks and institutional investors (pension funds etc.), should accept bigger losses. The French don’t want bigger losses for the private sector as their banks have bigger exposure to Greece. Either way, taxpayers will ultimately have to “recapitalize” the European banks in the form of bailouts.

Our markets didn’t like the news. With the exception of the NASDAQ being down all day due to Apple missing earnings estimates, the DOW and S&P were in positive territory until afternoon trading. When all was said and done, all 3 indices closed near their lows of the day… not a good sign.

Down Volume was in the low 80s on the NYSE and in the high 70s on the NASDAQ. Total volume was down on the NYSE, but up significantly on the NASDAQ. Therefore, it was a “distribution” day on the NASDAQ.

Amid stocks giving disappointing news on either earnings or forward guidance were American Express and EBay. The overall tone of this earnings season thus far is one of a slowdown and downward revisions going forward.

I stated in my newsletter yesterday that I purchased the ProShares Ultra NASDAQ 100 (QLD) because of the news of a big European bailout and expectations of good news from Apple. Once Apple disappointed, I stated I would reverse the trade (cover and move to cash) if the market showed weakness today.

That is exactly what I did. The NASDAQ opened down around -17 points, but then drifted higher in the morning as the overall market was gaining strength, and at one point was down only around -5 points. Then in early afternoon, selling on heavier volume began to enter the markets and I quickly covered (sold) my position in QLD. The NASDAQ finished down over -53 points, or -2% so it turned out to be the right move.

There are a lot of undercurrents for the weak markets. Inflation is coming in hot and company news is coming in weak. Mortgage applications were down -15% from last week. But the real wildcard is Europe. Until Europe formalizes a plan, the markets will continue to sell off.

In overnight trading (Wednesday 10:55 p.m. CST) all the Asian equity markets are in the red. Gold, silver, and oil are all in negative territory. The US dollar is flat against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down -6 points, the S&P futures are down .25 points, and the NASDAQ futures are down 1.50 points. On the brighter side, they have recovered from earlier levels.

The Producers Price Index (PPI) came out hot indicating there is in fact inflation coming through the system. The markets began on a sour note yesterday and looked to be a follow through down day. We had a mixed bag of earnings. Even though a few banks had some good news, it was primarily due to accounting gains. Goldman Sachs actually had a loss.

Technology was also mixed. Yahoo’s profit came down but still beat estimates as did their revenue. Intel beat forecast and guided higher going forward. But Apple surprised everyone, including myself, by missing earnings and revenue expectations.

But buying entered the market as the European meetings went on throughout the day. Late yesterday afternoon with an hour left in trading, France and Germany are “ready to agree on a 2 trillion Euro rescue fund” according to the Guardian (London) as part of a “comprehensive plan” to solve the debt crisis. This comes as rating agency Moody’s warned it might review France’s AAA rating.

France’s sovereign debt yields have been rising quickly so Germany and France had to move quickly. The problem is Moody’s is reviewing France due to their rising cost of bailing out other Eurozone countries and its own banks.

Overall volume increased by double digits from Monday’s selloff on both exchanges. The NYSE qualified for a 90% Up Volume day, and Up Volume on the NASDAQ was in the mid 70s. The NASDAQ, has however, broken through its 2 month trading range and resistance (see charts). The DOW and S&P still have yet to break out of their trading range, but are fast approaching that level.

NASDAQ (Year to Date) Breaking Through Resistance on 10-18-2011

NASDAQ (2 Month Trading Range) Breaking thru Resistance on news of the $2 Trillon EU Bailout 10-18-2011

Make no mistake, this is due to stimulus and bailouts, not to economic strength which is reversing. Once the 2 trillion European bailout trial balloon was announced, the market began going higher into the close on increasing volume.

In response to  the European bailout and because of my (incorrect) expectations of Apple beating estimates after the bell, I purchased the ProShares Ultra NASDAQ  100 (QLD) just before the close.  I had a profit 10 minutes later at the close, but it went against me in afterhours trading.

It is a trade, nothing more. If we don’t have a positive, follow through day in the morning, I will quickly unwind this trade. Cash is still king due to the all uncertainty and I still hold a lot of cash.

In overnight trading (Tuesday 9:38 p.m. CST) the Asian equity markets are mixed. The US dollar is down against the Yen, and essentially flat against the Euro and Pound. Gold is in positive territory, but silver and oil are down.

Our US equity futures are also down. The DOW futures are down 37 points, the S&P futures are down 6.25 points, and the NASDAQ futures are down 21.75 points. If things hold overnight, I will likely be unwinding my trade quickly.