Markets returned to positive territory as Europe appeared to make some progress at its financial summit, sending the S&P up 1.05%, although nothing is set in stone yet regarding a solution.

In commodities, oil took a backseat after two big days, falling 2.47%. Furthermore, the dollar remained at $1.39/Euro. The VIX also dropped 7.32% to fall below 30. As market volatility wavers significantly, I’m still skeptical about an entry point for equity exposure until there’s a more affirmative European game plan.

A sign that the EFSF funding situation has gotten more desperate than seemingly indicated, Sarkozy is planning to ask the Chinese premier for financial aid despite previous statements from China that it wants no part in the debt crisis. The Europeans are still seeking outside assistance given expanded powers of the EFSF that now expand to buying sovereign bonds. And that’s not the only issue at hand.

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After yesterday’s gains, markets took a step back today as the S&P 500 dropped 2.00% in the wake of weak U.S. corporate earnings and nervous anticipation ahead of tomorrow’s European summit meeting. In commodities, oil and gold rose 1.73% and 2.99%, respectively. The dollar remained relatively flat against the Euro, sticking to $1.39/Euro, while volatility took a big leap today, spiking 10.12%.

Anemic earnings today suggest mixed economic signals, making it difficult to determine where the U.S. economy is heading. Barring the Netflix debacle, large firms such as 3M and Amazon came in below estimates, with the latter dropping 15%.

Meanwhile, economic indicators appear to indicate we are in a trough. For instance, consumer confidence is now at a 2-year low while the August S&P/Case-Schiller index figure indicated that for 20 major cities, property values fell 3.8% from one year earlier. The continued beleaguered state of the housing market still doesn’t look sit well for the economy with the prospect of more homes heading underwater. If you think the U.S. is bad though, take a look at Europe.

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Political deadlock in the wake of yesterday’s Eurozone meetings that failed to produce a definitive plan on how to deal with the continent’s mounting debt didn’t seem to faze markets in today’s trading session as the S&P 500 rose 1.29%. On the international front, the Nikkei, Shanghai Composite, FTSE, and DAX also posted gains.

In relation to earnings, Caterpillar’s above consensus performance provided some hope for the U.S. economy with regards to manufacturing, helping markets see some green. Also, there was a boost in M&A activity that was promising. Yet, the big story is still Europe.

While it appears that markets aren’t heavily taking European uncertainty into account right now, there’s no denying that Europe’s house is not in order. Member nations and Greek debt holders still can’t decide on the size of the haircut although 60% has been suggested as a minimum to help Greece stave off default given that it will need $350 billion in aid through the end of the decade. But it gets worse than that.

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In case you missed it, here’s a summary of the ETF topics and market reviews I posted to my blog during the week ending on 10/23/2011.

Again, the markets assumed a positive outcome of this weekend’s European summit based on hopes that all debt issues will be resolved. The news headlines were chockfull of announcements showing unity and agreement between the German’s and the French only to be questioned hours later.

It’s simply been a week of insanity in how markets reacted to nothing but wishful thinking. By the end of this weekend, we will hopefully know more about the alleged master plan, unless the leaders decide that they don’t really have much to go by and simply postpone any hard decisions under the pretense that more meetings are needed.

If you followed my sell stops rules, you should no longer have any equity exposure at this time with the possible exception of a couple of sector/country/bond ETFs, or hedged positions.

This week, we covered the following:

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