The good news is that some of the overanxious dip buyers seem to be giving up. While sentiment has become quite negative lately, we have been overrun with traders looking to catch a quick oversold bounce. It certainly seems like the logical trade given how fast everything has fallen, but there have been too many people thinking it would be quick and easy.
The main argument for a bounce is that it is so negative, but the fact that it hasn't worked may be what gives us the real negativity that will help the trade finally work. This is looking like capitulation of the bounce buyers right now. They are giving up on it, taking their losses and the indices are struggling to hold above yesterday's close.
The problem with contrary trading is that it is extremely hard to be very precise with timing. We will never know exactly at what point the sellers are so negative that they don't have anything left to sell. The whole idea behind this approach is that when negativity is extreme, then everyone has already sold and there won't be much more selling pressure. It is interesting logic but not at all easy to implement, especially when you have very short-term traders and computer programs that don't even think in those terms.
I have had doubts about whether we really had the sort of negativity that produces a snap-back move. I have fewer doubts right now. Sentiment is as ugly as sin and there appears to be some capitulation and disgust. It may actually be bad enough now that it can't get worse.
I'm still looking to play ProShares Ultra QQQ (QLD) long but have just a token position at the moment.