Wednesday, May 24, 2006

Last Leg Down?

The market is swooning again, unable to find its footing.

Measures of investor anxiety are spiking again. The volatility indexes (VIX/VXN) are sharply higher, and the CBOE put/call ratio is again well over 1.0 (1.29).

This is the 9th consecutive day that the put/call ratio is running above 1.0. I have talked with many investment managers who are downplaying its significance. I am taking the other side of that trade, and think that it is a meaningful sign of a peak in short-term bearishness.

Combined with the deeply oversold market conditions, I think this bodes well for a strong bounce very soon.


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