Despite Market Rebound, Bears See Market Heading Lower

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More Fed Manipulation (I Mean Intervention)?
By Carley Garner
May 27, 2011

A lousy GDP reading and worse than expected weekly jobless claims seems to have revived the QE bandwagon. Both Treasuries and stocks are said to have rallied together on thoughts of more Federal Reserve money printing and asset inflation. However, if you take the Fed out of the equation the financial markets will have to stand on its own two feet and at some point this will either prove the stock market bulls or the Treasury market bulls wrong. They can't both be right, can they?

I usually look at formal sentiment measures and indices to gauge whether the general public is bullish or bearish equities. However, I ran across this comment string on the Yahoo Finance page and it seems to be a bit more telling...On a simple and very short news story with the headline "Wall Street Bounces Back for a Second Day" most comments were hostile and decisively bearish. Here are a few of the tamer examples:

"You call 8 points on the dow a bounce back? More like treading water."
"i hate the tribe responsible for this folly"
"The only bounce on Wall Street going forward will be the checks we get for our 401Ks!"
"Wall Street Bounces Back for a Second Day. "Dead cat bounce, now closing lower. Pathetic."
"Yeah a 7 point bounce... we are all getting rich now.... This market will tank later this summer... Oh wait, I am wrong on this prediction as I forgot this is Summer of Recovery Take II.... LOL..."
"bucks is a bounce back ??!!!! ROTFLMAOL . Wait for the USA AND GREEK DEFAULTS"

There are more, but you get the idea. Being the contrarians that we are, we can't help but feel as though the overly confident bears could be forced to run for the hills in the coming sessions. The end of May is notoriously bullish for equities and it appears as though sentiment might have tipped a little too much to the bear camp and trading just isn't that easy.

We are of the belief that the best trade for now will be buying into large dips. I have a feeling that there are a substantial number of bears that sold at bad prices and will be looking for a way to get out. Any dip, might be bought up.
Although we were looking for the S&P to print a little under 1300, it reached a low of 1302 in overnight trade and that seemed to be enough to meet the market's technical needs. On the way up, we will run into some resistance near 1333 and again near 1344, which we think will be seen early next week.

In the meantime, support lies at 1313 and then again just under 1300 (we aren't counting on the later being seen, but if so it could be a great time to buy).