The Independence Day Rally

Few were positioned properly for yesterday's rally as bearish sentiment has spread in recent weeks.  I believe that the under invested will provide a bid to the market on pullbacks. The market will likely rally into Fourth of July weekend as we are oversold and sentiment is too bearish.

The sentiment surveys, oversold readings and the put/call ratios all point to levels of negative sentiment that have typically led to rallies. One day of rallying does not relieve the bearishness that has been built up over the course of seven weeks. The reason I believe we will rally into Fourth of July weekend is because we will not be overbought until that point. Additionally,  turn of the month seasonality is typically positive, which works out to the days leading into Fourth of July weekend.


Anonymous said...

do you think end of the month seasonality will be reversed because it's the end of the quarter and the market is down 3%+ so therefore cash poor mutual funds will accelerate selling?

Tsachy Mishal said...

The turn of the month was strong even during the 2008 financial crisis. Where I have seen seasonality fail is when there is extreme sentiment. For instance, heading into March 1 there was extreme bullishness and everybody was looking for a first of the month rally.The market collapsed that day.