Is Everyone Bearish, Or Is Everyone Assuming We're Due For A Big Bounce?

We actually haven’t heard from too many folks who don’t think some kind of sharp, snapback bounce is coming. Even the bears seem to think one is right around the corner. Thus to assume that everyone is negative on the market isn’t exactly correct.

This market commentary from Waverly Advisors certainly rings true:

Sometimes, the best market timing signals emerge when a high probability play fails to develop.  This was the case in the US Equities market yesterday:  Strength in Asia and Europe translated into a significant gap up on the open, much of last week’s selloff was erased, major market leaders looked poise to rocket to new highs—all signs seemed to point to a screaming rally that would seriously test the conviction level of the bears. 

After all, large opening gaps usually point to significant changes in sentiment and market dynamics, so some  followthrough was to be expected.  Instead… nothing.  Early strength faded, the small caps dropped below Friday’s high, and one by one market leading stocks melted to new lows.  Finally, the S&P failed to hold above support and the market traded off to close near the lows of the session.
We continue to see significant structural factors that support continued intermediate-term weakness.  It is difficult to read a news story or a blog post without finding someone looking for a bounce, but we have said this before and we will say it again—the best and easiest money is to be made on the side of the larger trend.  Rather than worry about some arcane technical indicator that points to an oversold condition, it pays to align ourselves with the larger forces at work in the market.  Yes, the market is potentially overextended, and yes, we are vulnerable to the typical short squeeze rallies that come in bear markets, but any rally in this market should be treated as an opportune spot to add to shorts until further notice.  

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