Earnings continue to come in weak with guidance being lowered. Investors have finally responded to the negative news and the sentiment indicators are starting to reflect that. Rydex traders have lowered their exposure to the lowest levels in a couple of months. Most sentiment indicators are in neutral territory but no longer in the extreme optimism territory we saw after QE Infinity was announced.
We are seeing a break this morning below widely watched technical levels. This could lead to a decent washout and accelerate the move towards extreme pessimism. I continue to believe that the best course of action is to buy extreme pessimism and sell optimism. It looks like we are on our way to an oversold reading combined with excess pessimism.