Tuesday, May 24, 2011

Trader Sentiment Has Reached Bearish Levels

It looks like the market may need to test lower levels before a short term bottom is seen as squeeze short signals fired yesterday.  However, the tenor of the decline so far is corrective.  A rally with another low would complete 7 waves down from the May high.  The correction may extend well into June at this point if a triangle is underway.  This may allow sentiment to reach even more bearish levels, which would support a strong rally once the triangle terminates.  A sharp decline that does not breach the wave [c] low would be a strong clue that the pattern is a triangle and that it is finished.

Below is one possible interpretation of the pattern. A typical end of the month/first of the month rally should begin any day.

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