More: overbought

According to report on Bloomberg today, traders are now betting that the rally is about to come to a screeching halt…

Aug. 10 (Bloomberg) -- Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.
Traders were betting the VIX, a gauge of expected stock swings, would increase 13 percent in the next five weeks, according to futures prices at the end of last week compiled by Bloomberg. That’s the biggest spread since August 2008, before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.

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Illiquidity

Stocks seem still to be in a correction. We think this can go on a little longer, before the tide turns. We agree with what Dennis Gartman is writing:

…we should also remember, however, that in the course of the past several decades, the most violent market movements have tended to come in late July and early August just precisely because the dealing rooms are emptier. Illiquidity during times of political duress can create its own problems, and we remember the Russian problems of August of a decade ago, and the problems attendant to LTCM that evolved out of that earlier crisis. These were “summer” crises, and there have been others, so just because the doldrums have set in does not mean that they are permanent, and that they cannot develop into something far more unstable. They can; they have and they will… we simply know not when.

But where a lot of people thing that we are looking into the abyss, I wouldn’t bet against a kind of sharp rally.
Be careful out there…

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