Is Santa Claus Coming To Town

I believe that we are setting up for a year end rally, but pinpointing where it will start is a bit of a challenge. The reason being that we have had a lot of choppy activity recently. The market will be at an oversold reading at the end of the day today, but it won't be a great reading. My preference is for a down day today that gets us more oversold and turns the crowd bearish. In the worst case we will have to suffer through another down week, which would leave us very oversold for the final week of the year.

It is difficult to argue that sentiment is bullish right now. The overarching sentiment that I am seeing is despondency. I do believe that we are closer to bearishness and another down day is likely to get us closer to excess bearishness. The secondary market is now closed for the year, so there will be no more supply via IPOs and secondaries. Europe is likely to continue to dominate market direction but barring a severe worsening of the crisid I believe further weakness can be bought into for a year end rally.

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