After the 10% rally we saw off of the extreme conditions of two weeks back the direction of the market is a tougher call. The rubber band was stretched very far on the downside and odds were we would see some sort of snap back, which we have. There are now good arguments that could be made by both bulls and bears.
The bears will point to the 10% rally and say we have gone too far, too fast. The situation in Europe seems to be worsening as peripheral spreads are once again widening. Around the World economies seem to be stalling out.
The bulls will point to the fact that investors have yet to embrace this rally. The put/call ratios still show put buying on most days and now even the Investors Intelligence numbers are showing negativity. While investors have turned more pessimistic we have been seeing insider buying, share repurchases and cash takeovers.
Barring a severe worsening of the situation in Europe I am more inclined to side with the bulls for now. If we rallied for a couple more days we would reach a good overbought reading and sentiment would likely turn more positive. Additionally, by the middle of next week seasonality turns negative. At that point I would likely be more inclined to side with the bears.