I believe that in the short run the pessimism has become too thick:
- Yesterday, we saw put buying that was only matched once during the 2007-2009 bear market. In addittion, the 10 day moving averages of the put/call ratios are in extreme territory.
- Rydex traders are at levels of high pessimism.
- Yesterday, many of the hiding places that have held up well during the decline were pummeled. That typically occurs near the end of moves.
- These type of moves tend to last about six weeks which would measure to the beginning of June. However, we could see a throwback rally now and a retest at the beginning of June before a better rally develops.
- Sentiment surveys are not extreme yet. That likely has to do with the duration of the decline as well. By early June the crowd should be in the bear camp.
- The global economy is unbalanced and something can snap at any time.
- Given how much the market has fallen margin calls can become an issue.