No changes to outlook...

I'm still thinking that the upside potential here is about 1-3%, however, the downside risk in what I believe is a coming consolidation will be accompanied by modest downside that would very likely wipe out any gains made from this point. I touched upon the Money Market component of the rydex ratio as a measure of trader sentiment a couple weeks ago which was bullish for the market in the ST given that it showed significant skepticism in the face of a strong market. Well, that's no longer the case now.




The level of MM funds is back to where it stood in mid June which was the last time the market had a correction. Notice however, how MM fund flows have spiked up and down a couple of times lately. This is indicative of the fickleness of traders and it shows to me that the rally isn't being trusted because these rydex traders are quick to go to cash at the first hint of danger. Again, this is bullish longer term from a contrarian view...when you see these traders showing complacency about downside in the market it would hint of a larger drop coming.

Bottom line: upside although still possible from here will be modest and likely given back in the correction/consolidation that follows. I believe any downside will be limited as well similar to the mid June correction because the psychological backdrop from a longer term perspective is still favorable. Most burned bears I follow are still in denial showing very little respect for this rally and are so confident the market is going to collapse this fall while most bulls out there it seems are only cautiously bullish.
The consensus thinking out there is that any recovery will be modest and below average due to deleveraging which will result in below average growth for years. And as I said before, due to this consensus view, there's a greater chance for positive surprises than negative ones longer term.