Bounce Odds

Today is going to be the fourth down day in a row and at one point last night the S&P 500 stood 5% lower than its high last Tuesday. In the very short run the market is oversold and we saw some panic last night. While it would be better if we saw panic during the regular session, these are all ingredients for a bounce.

While the market is setting up for a bounce there is less reason to expect a lasting low. We are not yet at a good oversold reading as this decline is only four days old(in the last paragraph I said we were " very short term oversold", not to be confused with a good oversold reading) . After a seven month rally it would not be surprising to see a correction that gets us to extreme oversold conditions and extreme bearishness. We are not yet there. I am not saying this will happen, only that its  a possibility one must consider.

The timing of the government's $5 billion AIG offering, which priced last night, could not have been worse. The last thing the market needed was more supply. This additional supply will on the margin make it more difficult for the market to bounce.

 

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