Wednesday's gains were not too surprising but are we out of the woods?

I don't think so.  But it could be getting close.  After dropping 17 points on Tuesday, Wednesday's 6 point gain in the S&P 500 could be considered a dead cat bounce.  What happens next may give us a clue.  The short term oversold condition was nearly neutralized by the gain yesterday but the longer term is still leaning toward overbought.  That is why I was thinking we could see a little more choppiness in the days ahead.

Ideally that choppiness would culminate with one last push down setting up a nice buying opportunity in the days ahead.  That's what I was hoping for but something happened Tuesday that may keep the downside limited.  The odd-lot short sales hit a record high Tuesday and that may keep the market afloat some.  What are odd-lot short sales?

You know how I like to bet against the "dumb" money.  Rather than say dumb, I'll call it inexperienced, or less sophisticated investors.  Typically stock purchasers buy and sell stocks in lots of 100 or more.  Odd-lot sales are trades made in orders of less than 100 shares.  Like the sentiment surveys, when these folks are buying excessively, it is a bad sign for the market.  When they are short selling heavily, betting against the market as they are now, it is a positive sign for future market action because unfortunately for them, they are usually wrong at market tops and bottoms.  As I mentioned, on Tuesday the short sales by these odd-lot traders hit an all time high.  One more push down would likely be enough for me to bet against them by getting back into stocks, but we may not get that push.

Taking an overall look at the charts, I am still not convinced of the direction of the market.  I am satisfied being in the G fund right now but the question is do we buy weakness or is it going to lead to more of a pullback?  Since we don't really know we have to use the indicators to make that decision and sentiment is one of my favorites.  That odd-lot short sales record is a key to my decision.  It doesn't mean the market will rally right away, but I think it tells us that we are least closing in on a tradable bottom.  I say tradable because it may only be a shorter term buying opportunity.  We could see more weakness a little further down the road.  We'd have to watch how the indices react if and when they approach the overhead resistance.

If you remember that options expiration week chart I posted the other day, it showed that the Thursday of the week following options expiration week is usually the worst day of the week.  But this is not a typical week as we had the holiday Monday so I don't know how that will play out.  Just thought I'd mention that.

That's all for today.  Currently 100% G fund but I am starting to get interested in getting back in on any more significant downside action.  I'd like to see a move to the 1185 area on the S&P hold.  As I mentioned yesterday if it doesn't hold, we may be testing the 1163 support level so remain careful.  See you tomorrow.