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In my last post on Monday morning (see Choppy markets ahead), I wrote that the markets were likely to rally this week:

[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.


(Click to enlarge)

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.


(Click to enlarge)

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.

Disclaimer: 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.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Source: Waiting For The Bounce