A Lot Of Negativity

The bad news for the bulls is that one can argue that the very short term oversold reading is being worked off by going sideways. The good news is that sentiment has turned quite negative and that if we continue to head lower we will be oversold at the end of the week.

Last week we were headed towards a good overbought reading but the market turned south before we could get there. My hope is that we can get oversold this week as it would set up a great risk/reward trade from the long side. Sentiment is negative now so I can only imagine how negative it would be if we declined for the balance of the week. The last time we had a good oversold reading combined with negative sentiment was December, when the rally that carried us through March kicked off.

I am not certain we will get a good oversold reading because sentiment seems very negative right now. The big, bad news has passed in Europe and sovereign rates are lower than before the news. But market participants are not known for their emotional balance so hopefully they push this too far.

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