Still no signs of a fresh leg down. The markets don’t seem to want to sell off this week, and have been making little lunges higher. Even the Athens stock market has bounced 9% since Monday. Who would have guessed?

Fear is abating in all major markets: the dollar has stalled, oil is up four bucks, treasury bonds have dropped, metals are inching higher, and the grains seem to turning the corner. Despite this repreive, investor sentiment on stocks and the euro remains nearly as low as a week ago.

This could be just the set-up for a short squeeze: if we inch a bit higher, bears could all throw in the towel all at once as their attitude shifts from an expectation of more winnings to concern about losses.

You can see in this 1-month chart of round-the-clock trading that Dow futures and the dollar index have been inching toward the trendlines that have contained their moves since the stock markets peaked three weeks ago:

Source: Interactive Brokers

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A break of those lines could send traders scrambling to reverse positions. A break of the shorter lines could mean that the majority will actually be right and we will make new stock and euro lows within days (and maybe even have a frightening but brief mini-crash, which the put:call ratio, DSI, VIX and summer 2007 analogue allow for).

(EDIT, 6:23 EST) It is interesting also how put equity buyers and call sellers stepped up their enthusiasm yesterday, finally nudging the 5-day average put:call ratio up past the mean, a condition that I have long viewed as a prerequisite for the end of this stock decline:

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This is certainly not the time to hold aggressive shorts (that was a month ago, when the above indicator was super bearish). I think the odds now even favor a rally.