In mid January almost every indicator I looked at was at an extreme on both a short and intermediate term basis. There was heavy call buying for multiple weeks in a row. Sentiment surveys were showing record low bears for an equally long period of time. The market was maximum overbought on both a 10 and 30 day basis. Those factors made me confident we would see a 5% to 10% correction.
The good news for the bears is that we are finally starting to see some exuberance. In addition, the market will be maximum overbought on a 10 day basis at the end of the day tomorrow if this rally continues.
The bad news for the bears is that we are only now starting to see some exuberance and the market will not be overbought on an intermediate term basis for a couple more weeks. While Rydex traders were positioned leveraged long in mid January, they are currently positioned conservatively.
I do believe that the maximum overbought reading and the very recent exuberance should lead to some sort of a correction this week. I just don't believe it will be of the magnitude of the move we saw in mid January. We will likely need to re-rally for a better top to emerge.