Wrong

I was clearly wrong about how this week would turn out as I was expecting us to rally. Instead the market has been down for five days in a row and futures are lower into the sixth day. The reason for my optimism was that the rally off of the European bailout was only three days old heading into last Friday, we were still oversold and seasonality was set to be positive. This led me to believe that the bulls deserved the benefit of the doubt.

Instead of being nearly overbought today as I thought we would be, we are looking at a sixth straight down day. As long time readers know I believe  a string of 10 days where the majority of the action is to the downside leads to a good oversold reading. That means we are still four trading days away from a good oversold reading. However, we do not usually go down for ten straight days. Generally, there is a relief bounce somewhere in between and we have not had one yet. The good news is that we should either see a relief bounce soon or its unlikely the decline will reach 10 days.

I believe it is too late to sell both because this decline is getting long in the tooth and because I believe the debt ceiling will be raised. I am surprised that Boehner's failure to pass a bill is being viewed negatively as this increases the chances of a bipartisan compromise.

 

 

1 comment:

Tsachy Mishal said...

If there was a clue a week ago that this would happen it was that sentiment was too bullish. I thought that meant the rally would be on the weak side.