Heading Towards A Short Term Top

We are finally headed towards a maximum overbought condition. At the same time investors are finally starting to warm up to the market as the AAII survey bulls jumped to 51%. It would not be surprising to see the market start heading lower Monday or Tuesday of next week.

Investors still seem tepid towards the market and ideally I would like to see more excitement before turning negative. Its possible we get it in the next couple of days. But given the weak seasonality and weakening economy I am not certain we will reach bullish extremes before turning.

On the one hand there is tremendous economic risk and on the other is the possibility that hedge funds decide to re-risk. Tread carefully but if you are inclined towards the bear side we seem headed towards a decent risk/reward setup.

5 comments:

Onlooker said...

Yes and it looks like those RYDEX traders started chasing aggressively too.

Anonymous said...

Todays move lower is just what the bulls needed. I'm expecting a continued move higher next few weeks. Maybe a sideways move for a couple of days to work of the short term overbought condition.

PJ said...

Seems like the market is very simple. A fundamentals-driven downtrend is intact, but in the first two weeks of every month the banks borrow $30 billion from the Fed and drive stock prices up to screw the put buyers. Then a few days before op ex when most of the outstanding puts have been repurchased, the downtrend resumes.

Tsachy Mishal said...

Rydex traders are still positioned bearishly although they did use yesterdays dip to cover some shorts.

Onlooker said...

Generally speaking, yes. But they started chasing this rally as shown in a couple of the indicators; Beta chase and Bull/bear RSI spread. These are very short term indicators so it's just a start.