The best thing the market has going is seasonality, as we are entering the strongest part of the year. In addition, the complacency disappeared from the options gauges late in the week.
On the negative side the correction has been on the short side thus far in terms of time. All things being equal. I would expect the correction to last another week. However, the days around Thanksgiving have a strong positive bias. We are seeing more and more divergences, which argues for the possibility of a stronger correction than what we have been seeing recently. Sentiment has not yet shifted back to pessimism as Rydex traders are still pretty heavily long. This mix of factors makes the shorter term a tougher call.
I expect the existing home sales numbers released today to surprise to the upside. Existing home sales represents closings, for which contracts were likely signed during the Summer. We know that housing activity was brisk during the Summer, as first time buyers rushed in order to receive the tax credit.
Currently, weekly mortgage purchase applications are hitting multi-year lows. This is a much better forward indicator of housing activity while existing home sales are rear view. Housing numbers have been surprising to the downside, so a positive surprise from existing home sales has the potential to spark a small rally even though the number does not mean much.
I will be traveling today and resume posting in the afternoon.