Stocks and other risky assets had an ugly, ugly day Thursday as traders reacted so a batch of poor economic data out of China, Germany and the United States, as well as to lingering disappointment over the Federal Reserve's decision to merely extend its existing $400 billion Operation Twist initiative by $267 billion.

With Europe under pressure and growth slowing here, Wall Street obviously wanted more. So is that it? Is June's rebound finished? Not quite.

The evidence suggests this is a typical test of overhead resistance. Trough to peak, the S&P 500 jumped nearly 8% from its low and crossed over its 50-day moving average. Yet investor sentiment has barely budged. In fact, newsletter writers (guys like me) have reached a level of indecision not seen since 1983 according to an analysis of Investor's Intelligence survey data.

Ancillary markets are telling the same story. Traders have piled into the U.S. dollar (a safe haven asset) and shorted the euro on a scale that exceeds the extremes reached back in 2010 in the midst of the panic over the first Greek bailout. Options traders are also very nervous: an analysis of put/call trading volumes suggests small, speculative traders have only been this fearful on one other occasion since the March 2009 bear market low. That was June 2010.

While confidence has been bombed out, technical data suggests bargain hunters are on the prowl. Market breadth, or the number of stocks participating to the upside, has steadily increased over the past few weeks. The NYSE McClellan Oscillator, which tracks breadth momentum, has reached levels not seen since last October. And cyclical, economically-sensiti​ve stocks have solidly outperformed defensive, non-cyclical issues like consumer staples.

These are all good signs.

Today's sell-off is showing relatively narrow participation as trader focus mainly on the relatively narrow group of stocks that are declining. As I write this, 78% of NYSE stocks are declining. Yet some 91% of NYSE volume is to the downside. The relationship between these two is used to calculate what's known as the ARMs Index. And earlier today, it was showing its best performance since late December -- a day that, like now, featured a quick dramatic pullback at resistance levels.

What about the fundamentals? Well, we already knew the economy was in trouble. Confirmation of this will only put pressure on policymakers at the Federal Reserve, the European Central Bank, and in Germany to support additional pro-growth measures from cheaper credit to direct bond purchases and a relaxation of Greece's bailout obligations.

Much of Europe is already in recession, so it's not surprising that German manufacturing activity is stalling hard (lowest level in some three years) or China's export miracle is sputtering. 

In the U.S., continued weakness will only open the door to more aggressive easing by the Federal Reserve -- as it promised in its policy statement yesterday. And in Europe, the European Central Bank is already softening its stance by agreeing to accept mortgage securities as collateral against bank lending -- a backdoor way to help prop up Spanish banks saddled with bad mortgage loans.

Even the Germans seem to be warming to the idea of using the eurozone's bailout funds to push down Spanish and Italian borrowing costs.

It's not a slam dunk. But for now, the risks seem balanced to the upside. To be safe, I'm cutting my precious metals exposure in the Edge Letter Sample Portfolio, for now. Once things settle, I'll be looking to add gold/silver positions back in on expectations of more aggressive central bank interventions. Highlights include a near 10% gain in Great Basin Gold (GBG), a 4.1% gain in Market Vector Junior Gold Miners (GDXJ), and a 3.6% gain in Global X Silver Miners (SIL).

Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.c​​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.