Updated from 7:03 a.m. EDT
We are looking for a snapback rally in the next week, and here is why:
1. Short interest in the NYSE has reached historical levels, at almost 7%. This represents about 18 billion shares sold short. With the market having gone down in a straight line over the past year, the easy money on the short side of the market has already been made. Whenever a trade gets so one-sided, as it has with the short positions in the market, even the slightest bit of positive news could move the market substantially higher.
2. The recent drop in commodities is going to serve as a huge tailwind in the coming months for various companies across a broad array of sectors. This unprecedented collapse is the largest monthly decline we have seen in the past 30 or 40 years, and that's why companies such as
just raised their 2008 outlooks based on lower fuel costs. Some have suggested that the recent drop in commodities is due to a slowing of the total world economy, and while that is most likely true, it is unquestionably a huge tailwind for the U.S. consumer.
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