Option activity continues to show signs of a market overdue for some type of rally or at the very least a 4-7% bounce.
We continue to make some upside progress as the market was able to come back from some very strong overnight selling pressure. This type of move takes more than just short covering to sustain and finish where it did. This action today helps to negate the lack of follow through warning we got yesterday after stock prices could not keep a head of steam off the monster rally Tuesday.
We have some genuine possibilities of higher prices yet again on Friday. The main catalyst of direction tomorrow is going to be the inflation numbers that are to be released. If we see these numbers come in better than expected then we could really get a head of steam behind stock prices. However, the other side of the coin is the complete polar opposite should the numbers come in higher than anticipated.
The Put/Call ratio continues to show very large pockets of traders negative sentiment and thus should help the indexes to roll higher.
The question here for the NASDAQ is whether or not it will continue to follow this predictive model. As of right now, it is almost 95% accurate, which is pretty darn good and we are nearing a point where we should expect some type of counter trend rally.
This question will be answered over the next 3 days and should we see the next 3 days come in very close to this model, then there is without question some pretty strong indications that we may just start a fairly strong counter rally. Keep this in your mind over the next few days.