Looking at the brutal market action during the course of this week, I feel like it's time to try and add some short-term perspective.  Being cognizant of the contrarian nature of the market, I want to remind folks of what happens when everyone is leaning the same way.  Is there anyone out there who wants to buy stocks?  Does anyone feel good about the prospects of the U.S. economy?  I can't find anyone who is.  Are there any more sellers?  Sure, but they are outnumbered by folks sitting around with cash on the sidelines.  What I'd really like to see is a January 22nd style capitulation.  Blood in the streets, panic selling.  That would make things easier to gauge.  It seems like nobody wants to be long the market going into the weekend and vice-versa for oil.  The tail is wagging the dog here.  However, it is possible that we may see some short-covering going into the weekend as traders lock in their gains.

I don't like the fundamentals of the market mid-term, but I have some reason to think a short-term bounce is possible.  Here are my reasons to think we may see some buyers come in as early as next week:

1.   We have just officially entered a bear market.  The DJIA is now officially 20% off of its October 2007 highs.  I think buyers will test this significant support level.

2.  Although the VIX is still hovering in the 20's, sentiment is entirely bearish.  There isn't panic yet but nobody seems to see any opportunity at all here.  I like that setup short-term.  I would like it even better if we finish significantly lower today.

3.  Here is the big one:  142 dollar oil is unstainable because of the paralyzing impact on the average American's budget.  When politicians, comedians, entertainers, and the general media are this focused on gas prices, I am compelled to at least entertain taking the other side of the trade.  Oil will hit 120 before it hits 200 in my opinion. I heard a comedian the other day do an entire comedy routine on the price of gas! He said something like "it cost me $120 dollars to fill up my Hyundai Sonata!"  I won't even get into the Leno and Letterman bits recently.  As traders, what can we gleen from this?  Unsustainability.

4.   I believe the Fed will ramp up the jawboning of the dollar in an attempt to strengthen the currency.  Most experts think their stance this week was much too dovish.  They are in a bit of a bind due to the weak economic growth prospects and a 2% fed funds rate, but Paulson already indicated that they are considering a formal dollar intervention strategy.  Why is this important?  This type of action, although not overt, will drive down the price of oil, thus lifting the market on a short-term basis.  I believe oil will back off a bit here.  If not next week, post the July 4th holiday when holiday commuting subsides.

5.  Nothing goes up or down in a straight line.  The magnitude of the drop from the May highs has been fast and furious.

6.  Short covering.  With this many folks going short, positive catalysts can dramatically excasperate any move upwards. 

7.  The end of the month has been generally strong over the last several months.

So, am I crazy?  Maybe.  Am I a perma-bull, a cheerleader?  Absolutely not.  Check out my last market piece on May 16th:

 http://www.greenfaucet.com/traders-talk/can-energy-continue-to-lead-the-market