By Todd Harrison

Cyprus -- officially the Republic of Cyprus -- is an island country in the Eastern Mediterranean Sea, east of Greece, south of Turkey, west of Syria, Lebanon, northwest of Israel and north of Egypt. I had to search Wikipedia for that information as I, like most of you, wasn't quite sure exactly where this island was.

This eurozone country, with population just north of one million, three-quarters of whom are Greek and most of the others Turkish, dominated the weekend financial news for those of us who were paying attention. In a stunning shift from previous aid packages, EU Finance Ministers -- the folks up north, primarily German -- asked Cypriot savers to forfeit a portion of their deposits in return for a $13 billion bailout.

While that may not sound like a big deal, remember that few foresaw how meaningful the MicroStrategy (MSTR) news was in March 2000, when SEC accusations of accounting irregularities pricked the sentiment surrounding the technology bubble. Ditto American Home Mortgage (AHMIQ) in August 2007, when the lender opened 80% lower and triggered what would eventually morph into the sub-prime lending crisis.

One could intelligently argue that both of those situations were symptoms rather than the cause of those respective crises, and the same can be said of Cyprus, which is seemingly a guinea pig for a new approach from those pulling the policy strings. Cue the unintended consequences (the potential for bank runs across Europe) and moral hazard (word on the street is that wealthy Russian oligarchs have size holdings in the heretofore stealth, sunny island); in an interwoven finance-based global economy, credit of a different breed -- that of credibility, as posited in 2007 -- is the issue at hand for markets at large.

Stateside, it's not about the euro, per se; it's about the possibility that risk appetites will meaningfully shift, and the potential for a massive "off-sides" in the marketplace given fund managers have chased performance into quarter-end with the perception that the upside was all but a given (sentiment readings have been off the charts).

The timing, of course, is a bit curious given the S&P ($INX) 1580 level we've been monitoring so closely, per the chart below. While I have two-sided risk on -- I'm long BlackBerry (BBRY) and short Facebook (FB), right-sized and dollar-neutral -- I have been waiting until my risk was more defined (read: we were closer to S&P 1580) before shorting the market for a trade.

European markets are closed Monday for holiday -- which may be why this proposal was floated on Friday -- but pay attention to the vote in Cyprus as it will impact global market psychology. If lawmakers approve the terms of the bailout, it will set a dangerous precedent that will send shivers throughout Europe. If the Cyprus Parliament rejects the deposit tax, the aid package would be in jeopardy, potentially setting the stage for default, which would be akin to dominoes laced with dynamite given the leverage in system and the derivatives holding the global construct together.

We should see a stateside rally attempt at a point on Monday -- old habits are hard to break -- but we would be wise to remember that market psychology tends to feature three phases -- denial, migration, and panic -- across multiple time horizons. The Cyprus news may not prove to be a MicroStrategy or an American Home Mortgage-- bells are rarely rung at tops -- but it's most definitely a shot across the bow that should remind investors to see -- and respect -- both sides of the financial equation.

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