Updated Assessment

I expected there to be some sort of consolidation of the gains this week but yesterday's action took me by surprise. This is roughly the area where I thought the market would correct to and I even though we might head a bit lower. What surprised me is the ease with which we went lower and the lack of fear. I thought if we hit these levels the bears would be growling and there would be renewed fear and panic but that does  not seem to be the case.

I still believe that the market should rally through the turn of the quarter or at least not head lower. Seasonality will be strong and the market is still oversold in the intermediate term. What has changed is that I now believe that there is a greater chance that July 4 marks the top rather than July options expiration. I am also unsure that we will surpass the highs from this Monday. It looks increasingly likely that Monday marked the top for this move.

I don't want to make too much of one day's action in light Summer trading but my assessment of the market's condition has deteriorated. There is room for another ugly day this week before strong seasonality kicks in. I still expect us to end next week higher than where we are now but after that the market will be far more dangerous.


Onlooker said...

Without sharing proprietary information, SentimentTrader.com has a very short term sentiment model that just about pegged out bullish for the market yesterday at the close.

So that belies the assessment that all is calm and folks were sanguine about the drop.

Also the very high TRIN number of yesterday argues for a bounce.

Just a couple of additional data points.

I think we could exceed Monday's high, but maybe not by much. Otherwise I agree with your assessment.

Tsachy Mishal said...

I have not changed my mind about the short term and am still constructive, especially because I believe the new Home Sales number has the bears growling, which was missing yesterday. My updated assessment was more for the next month.

Onlooker said...

I hear ya. Just thought I'd throw that out there.

Thanks for your thoughts.

I nibbled at the close yesterday and am contemplating adding here. Index ETFs, that is.

ISE numbers are pretty low this morning. Might be enough to get a sustainable rally here.