By the end of the day on Tuesday the market will no longer be oversold and we will be entering neutral seasonality. There is still a window for a rally but as that window gets smaller I will no longer be buying dips. Instead, I will be looking to decrease exposure if we do rally.
There has been a very large improvement in sentiment in recent weeks. Market participants have gone from being excessively bullish to being cautious. The NAAIM investment manager survey is showing the least bullishness since early January. The Investor Intelligence bulls have dropped to 44% from 55% a few weeks ago. Additionally, the AAII bears have exceeded the bulls for two weeks in a row. The sentiment indicators are now in neutral territory whereas a few weeks ago they were clear negatives. The chart below is from the NAAIM:
There are some negatives that could crop up in the coming weeks. The crisis in Europe is worsening and authorities are doing nothing about it. Unless it gets better on its own it is likely to get worse. Market darlings like Apple have started to wobble. I believe it is likely that the bulls will be in for a bigger gut check in the coming weeks. In the intermediate term the market is still somewhat extended.
A few weeks ago I imagined myself getting pretty bearish at the end of April. However, the drop off in sentiment combined with the correction we have seen have made me more neutral. I will be looking to fade both the bulls and bears if they try to push the market too far in either direction.