Sunday's Italy Vote: Does Campanilismo Equal Nationalismo?

As the various direct or indirect referendums on the European Union begin to travel around Europe like an American on vacation with a leisurely but clear itinerary, Italy will have a vote on Sunday which is on proposed constitutional reforms but more or less amounts to a vote of confidence in its Prime Minister Renzi. Unlike Brexit and the U.S. Election, however, the polls leading up to the event suggest a "no" outcome is favored, meaning Renzi would resign as promised, and possibly lead to Italy's government dissolving. Beyond that, the "no" vote could gain enough backing to eventually give the anti-EU "Five Star movement" the momentum it needs to push Italy out of the Eurozone. 

What is most interesting about the Italy vote, as opposed to Britain, is the Italian notion of "Campanilismo," derived from the Italian word, "campanile," which literally means bell tower or the tallest building in even the smallest of villages in Italy. Every Italian city has one, and campanilismo essentially means taking pride in your city or region, such as Bologna, as opposed to identifying yourself first and foremost as an Italian. Campanilismo has been part of the Italian culture and history for centuries. 

But, much like Germany after World War II, campanilismo took on even more significance for the Axis powers as they sought to marginalize nationalism and instead focus on regional ties, such as many Germans identifying themselves as Bavarians even more than as Germans in the decades after the war. 

So, there is a ton of history here, as you can see. But, clearly, the populist winds are favoring a nationalist outcome on Sunday in Italy. 

As it pertains to stocks, even though the small caps, for example, are in a controlled pullback so far, it is worth noting that even contained pullbacks can morph into more aggressive ones. 

Thus, we need to juxtapose the short-term versus longer-term timeframes. While the IWM daily chart, first below, is pulling back slowly and orderly, the SPY hourly chart, second below, may be confirming a shorter-term bear flag lower for a deeper pullback into the weekend. Simply put, the market's consolidation is still playing out into the Italy vote.