Waiting is the Best Strategy

It is too early to start thinking about buying the dips as the market works out a bottom. Even so, the indices and stocks alike are nearing near term oversold conditions and the put call ratio is nearing almost 2:1 puts to calls indicating an overly bearish sentiment reading. Contrarians consider readings as extreme as this an indication that a bottom or turn around is near. The sixty dollar question is will the reversal be tradable or will it be a weak countertrend rally that should be used to short into? At this point we don’t know. We will need to watch the volume on the reversal to determine if smart money is starting to move back in. If they don’t, it likely means that the countertrend rally is only luring in retail investors before the next leg down ensues. Gold is getting choppy as the dollar finds itself in its own countertrend rally. The dollar reversal does in fact appear to be a weak rally that is only letting off downside pressure before another leg down can take place. We expect gold to chop around and pretty much trade sideways while traders position themselves in the dollar for the next leg lower. Recently, when the dollar goes lower, gold will move higher. Oil does not appear to be done moving up yet and looks like it could potentially grind its way higher over the next week or two. Waiting another day or two for better conditions is by far the superior trading strategy at this point.