[I]t may be premature to pile in on the short side. The market is oversold and it is poised for a bounce this week as option expiry weeks tend to have a positive bias and the SPX tests its 200-day moving average support.I was clearly wrong. Nevertheless, as the equity markets continue to deflate they have become even more oversold. AAII bullish sentiment (via Bespoke) is falling fast.
A curious bullish divergence
While the bears are in control of the tape, I would reiterate the risks of getting short at these levels. A curious bullish divergence is appearing in the currency markets. While stocks have continued their bearish pattern of strength in the morning and fading for the rest of the day, risk-on currencies such as the euro (shown in red) and the Canadian Dollar (blue) are showing strength.
Similarly, commodity prices, which is another risk-on asset, have begun to steady.
While the bears appear to be in control of the tape right now, I would reiterate my caution to get short at current levels. If you want to get bearish, at least wait for the rally to enter your position.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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