Oversold Rally

Even the bulls think that this is just an oversold rally and it seems everybody is eager to sell into it. The number of shorts at Rydex finally started jumping yesterday and the level of pessimism at Rydex is now approaching the levels seen in early July. I cannot even count the number of pundits I have heard say that we will reach 950 on the S&P 500 in the coming months.

I was in the camp that thought we would see an oversold rally and that we would likely head lower into the Fall but I am now questioning that belief. These are not the conditions under we which we normally see a big move lower in the markets. Its certainly possible that a rally turns the crowd bullish again as I have rarely seen investors so fickle.

Credible sources have said that there is a lot of activity in the M&A pipeline. If some of those deals come to fruition in the coming weeks I believe that the opposite could happen. With the crowd leaning bearish, we could be one big deal from a decent move higher in the markets.

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