Thoughts On The Market

  • The textbook reaction to the type of drop we saw yesterday is an oversold rally followed by a retest of the lows. However, the market has not been trading according to the textbook for the past few months and if a quant program or some sort of outside factor caused the decline yesterday I am not sure if yesterday is comparable to previous instances. 
  • We are very oversold in the short term and have had three solid days of put buying. All those factors argue for a short term rally.
  • It is hard to believe that yesterday's trading will make people feel better about holding stocks. Many became bullish over the past few weeks and the pendulum might swing the other way now. 
  • From the perspective of time this correction has been very short and it will likely take until the end of May before we get a good intermediate term oversold reading and a complete sentiment shift. Bounces and relief rallies not withstanding.

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