"My centre is collapsing, my right is in retreat. Situation excellent: I attack!" Marechal Foch, Battle of the Marne
And so he did, using hundreds of commandeered Parisian taxicabs to move his troops and famously saving the city from the Germans in 1914. The latest sentiment reading from Investors Intelligence shows a bearish reading of over 47%, the highest since September 1998 when Russia imploded and markedly more gloomy than at the January or March market lows. Intraday volatility in the S&P is the highest since the 2003 Iraq war, and has only been higher in the 1998 emerging markets crisis and the 1987 crash. Meanwhile, over 70% of the S&P 500 constituents are trading at least one standard deviation below their 200 day moving average, substantially worse than at either the January or March lows; only 3% are trading one standard deviation above.

 Even the energy sector is now down YTD despite current oil prices. What's all this telling us? That the upside risks in equities now outweigh the downside, and substantially. I warned of a retest of the lows back at the end of April when the market was strangely ebullient, and sold out of the bear rally, but as in March I think we're now at another inflection point (although not necessarily the definitive one in this bear market). What will trigger a rally? Perhaps just sheer bear exhaustion; moves of this speed tend to be self limiting and we have seen almost 2000 points off the S&P and 1000 off the FTSE 100 in 6 weeks; momentum like that is clearly unsustainable.

As I've discussed before, a more sanguine view of the US housing market and lower oil prices are likely in the second half, and the investor rotation from commodity exposed stocks to financials and pharmaceuticals will gather pace, driven by a stronger dollar and slumping emerging market growth as they battle surging inflation. In fact there is evidence of this already; mining stocks are 20% off their peak, while after a seemingly relentless bear market and just when everyone had given up on the sector, the performance of many large cap pharmaceutical stocks such as Astra Zeneca and Glaxo has turned dramatically positive over the past few weeks (as I suggested was likely on 12 June), surging through their long term moving averages. Hard though it is to believe that US investors can take lessons from a French General, markets, like wars, are full of dramatic and unexpected turns.