Overly Bearish Market Supports Higher Index Prices

Scans today offered up mostly short positions. The QQQQ is just plain ugly here as are stocks like AAPL. Oil stocks are in a dead cat bounce that looks to have run its course.

Even so, the near term trend in the SPY is up and sentiment is overly bearish. This supports a blue chip rally at a minimum.

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Explanation:

Bearish sentiment supports a rally here. However, weaker sectors, such as tech and oils, offer potential shorts here. Either way, we recommend shorting only a very small position and if you go long, try to stick to index trades as individual stocks are unreliable here.

Outlook:

The rebound rally back up to the 40- and 50-week averages we have been discussing will likely occur sooner rather than later. Until prices regress back to their mean, risk of whip saw will remain high and position sizes should be kept small.