Despite the charts that indicate the market should correct from these levels, the sentiment is actually fairly pessimistic.
The following is the QQQQ put/call open interest configuration from Schaeffer’s research – red are puts, blue are calls. You can see that the puts are far outnumbering the calls for the March contract. It looks the same for the April contract. That’s usually a sign that pessimism is fairly high – despite some other sentiment measures that disagree.
This leads me to believe that a downside shakeout might be healthy and be able to catch itself. Therefore, instead of betting on a crash down, I’ll probably be buying on the next dip with a tight stop.
But the healthiest thing the market could do right now is continue to go sideways. One of my favorite investing set ups is when markets go sideways but pessimism builds – not for any particular reason but just because nothing is happening. This is essentially what happened all of 2004 with a subsequent explosion higher in Q4. We are seeing the beginnings of this pessimism building, so if prices can hold together and form a trading range, I think the market could go much higher later in the year.