Encouraging Signs

I am seeing some encouraging signs in the market and expect this rally to continue barring further systemic shocks. After staying stubbornly bullish for months Rydex traders have been increasing their short positions all week and are now at an extreme. Anecdotally, there was a lot of scoffing yesterday at the short ban and the ensuing rally. That tells me that not many are looking for a continued rally, which means the bullish bandwagon has plenty of room to grow.

Many of the positives I discussed earlier in the week are still in place. The market remains oversold and  the put/call ratio is deeply oversold. Many EU countries put in a short ban that will last 15 days. Coincidentally that is just enough time to allow EU officials to finish their Summer holiday. I believe that should be enough to hold things together for a few weeks. As long as the crisis does not flare up again I believe the path of least resistance is higher.

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