I understand the desire of the bears to short a bounce. It is for the same reason that I am strongly considering exiting my remaining longs on a bounce. However, if we walk in on Tuesday morning and a mega deal is announced I believe that the lows are in. That said, it seems that the deal is in the earlier stages and this is not the likeliest outcome.
Bloomberg is reporting that the potential Sanofi deal will be in the $20 billion range. According to TrimTabs 50% of the benefit of a deal is seen in the week a deal is announced and 50% is seen at closing. That would mean there would be $10 billion freed up to go into other stocks as arbs buy the stock from conventional holders. In addition, the Millipore deal is scheduled to close as early as next week, which is a $6 billion deal.
According to trim Tab's formula the net inflow into the market would be $13 billion. With that type of inflow the bears might be fighting an uphill battle.