With Short Interest at record levels prior to last week’s decline, there is a good probability that we will see the Mother of All Short Covering Rallies when the selling abates. The only way I see to avoid this is for the current decline to assume a flatter downward slope over a sustained period. As I have previously written, the shape of last week’s decline is not what I would expect to start a bear market.

Based upon the volatility in this market and the tremendous amount of bullish mentality that built up over the past four years, I am expecting an eventual rally that will take us back to at least 1510 on the S&P. Right now, I don’t see it forming, but will let you know when I do.

The short sellers have been pathetic for a long time. With the added positions that probably got piled on during last week, I have no reason to believe they will not cover to finally take some profits. The only question is whether they will do it in orderly ways which will sustain the downward momentum or whether they will panic and bring on the Mother of All Short Covering Rallies.