Big Picture Review
By
Rennie on Friday, June 19th, 2009 at 3:27 am
The CBOE equity put/call ratio closed at a relatively high .76 Thursday considering the S&P closed up on the session. This combination triggered the 1-2 day sell setup recently discussed in Wednesday’s intraday update. The last 30 signals were all fairly recent (within the past year), but a check of the previous thirty signals reveals a similar tendency (23 out of 30 led to a lower S&P close within the next two sessions). That’s not quite enough of an edge over random to qualify as a signal, but it tends to back up the ‘Dow down three during expiration week’ sell setup currently in effect.
Stepping back from the day-to-day action, let’s take a look at some of our key ‘big picture’ indicators. You may recall we originally reviewed these indicators back in mid-October and found all five bearish. Here’s where they stand now…
Cumulative TICKscore: Starting with the good news, this is the one (and only) indicator that’s bullish. Cumulative TICKscore surged into a pattern of higher highs back in early May, breaking a long string of lower lows and lower highs.
200-day Moving Average of Up Volume – Down Volume: Still holding in bearish territory below the zero level. It’s not too far from crossing, but in a bullish environment the 200-day average will push cleanly above zero and hold there. We’re not at that point yet.
Market Vane: This survey of commodity trading advisors has consistently remained on the right side of the market. It last fell below 50%, indicating a bearish majority, on June 13th of last year and remains below this pivotal level despite the sizable rally off the March bottom.
Last Hour: This one’s a bit of a toss-up at the moment, leaning bearish. Recall that this is a long-term lead indicator. It rapidly declined for three years straight beginning in 2005, and has only recently retraced most of that decline. Note from the long-term chart that it’s usually when the retracement is complete that the true bottom has been reached. By that definition, we’re not there yet, as it’s retraced just under 90% of the 2005-2007 downswing. Given that there’s a bit of art involved in reading this indicator, one could argue that’s close enough and the retracement is complete. Possible, which is why I label this one a toss-up for now.
Nasdaq/NYSE Volume Ratio: Just a few months ago, this was one of the big picture indicators that was neutral-to-bullish. But it’s taken a huge, and bearish swing up as speculators rushed into the market on the June 1st breakout. The 20-day moving average hasn’t been at these levels since 2001. We need to see it come in significantly from current levels, preferably back down to the 1.25 area. Such a steep drop from its current 1.75 level would invariably coincide with sharply lower prices. This is one indicator that suggests it will be some time before any ‘all-clear’ is signaled. Other big picture indicators are not too far from hitting bullish territory, but this one’s not even close. It will take a major shift in sentiment before this indicator retreats to average territory.
Today marked the 14th day that the Nasdaq/NYSE Volume Ratio closed above 1.60. As I noted yesterday, “speculators aren’t giving up” despite losing all of the breakout gains. That’s a key point to keep in mind, because when we’ve seen such consistently lopsided volume in the past, there inevitably comes a breaking point when the ratio finally closes back in more normal territory. We’ve yet to reach that point. Here’s a look at every instance when the Nasdaq/NYSE Volume Ratio closed over 1.60 ten consecutive days, along with the performance of the Nasdaq100 (NDX) over the next two months. I’ve also added the number of days the ratio held above 1.60 in parentheses. Note that the record is 28 days in January/February 2001…
Nasdaq/NYSE Volume Ratio >1.60 Ten Consecutive Sessions
06/12/09… Nasdaq100 -2.4% open (14 days)
10/31/08… Nasdaq100 -10.0% two months later (14 days)
05/10/01… Nasdaq100 -7.7% two months later (10 days)
04/25/01… Nasdaq100 -3.5% two months later (10 days)
03/05/01… Nasdaq100 +0.1% two months later (11 days)
01/22/01… Nasdaq100 -38.9% two months later (28 days)
12/21/00… Nasdaq100 -7.5% two months later (17 days)
12/06/00… Nasdaq100 -10.1% two months later (10 days)
08/31/00… Nasdaq100 -22.1% two months later (13 days)
03/01/00… Nasdaq100 -14.3% two months later (13 days)
Big Picture Review
By Rennie on Friday, June 19th, 2009 at 3:27 amThe CBOE equity put/call ratio closed at a relatively high .76 Thursday considering the S&P closed up on the session. This combination triggered the 1-2 day sell setup recently discussed in Wednesday’s intraday update. The last 30 signals were all fairly recent (within the past year), but a check of the previous thirty signals reveals a similar tendency (23 out of 30 led to a lower S&P close within the next two sessions). That’s not quite enough of an edge over random to qualify as a signal, but it tends to back up the ‘Dow down three during expiration week’ sell setup currently in effect.
Stepping back from the day-to-day action, let’s take a look at some of our key ‘big picture’ indicators. You may recall we originally reviewed these indicators back in mid-October and found all five bearish. Here’s where they stand now…
Cumulative TICKscore: Starting with the good news, this is the one (and only) indicator that’s bullish. Cumulative TICKscore surged into a pattern of higher highs back in early May, breaking a long string of lower lows and lower highs.
200-day Moving Average of Up Volume – Down Volume: Still holding in bearish territory below the zero level. It’s not too far from crossing, but in a bullish environment the 200-day average will push cleanly above zero and hold there. We’re not at that point yet.
Market Vane: This survey of commodity trading advisors has consistently remained on the right side of the market. It last fell below 50%, indicating a bearish majority, on June 13th of last year and remains below this pivotal level despite the sizable rally off the March bottom.
Last Hour: This one’s a bit of a toss-up at the moment, leaning bearish. Recall that this is a long-term lead indicator. It rapidly declined for three years straight beginning in 2005, and has only recently retraced most of that decline. Note from the long-term chart that it’s usually when the retracement is complete that the true bottom has been reached. By that definition, we’re not there yet, as it’s retraced just under 90% of the 2005-2007 downswing. Given that there’s a bit of art involved in reading this indicator, one could argue that’s close enough and the retracement is complete. Possible, which is why I label this one a toss-up for now.
Nasdaq/NYSE Volume Ratio: Just a few months ago, this was one of the big picture indicators that was neutral-to-bullish. But it’s taken a huge, and bearish swing up as speculators rushed into the market on the June 1st breakout. The 20-day moving average hasn’t been at these levels since 2001. We need to see it come in significantly from current levels, preferably back down to the 1.25 area. Such a steep drop from its current 1.75 level would invariably coincide with sharply lower prices. This is one indicator that suggests it will be some time before any ‘all-clear’ is signaled. Other big picture indicators are not too far from hitting bullish territory, but this one’s not even close. It will take a major shift in sentiment before this indicator retreats to average territory.
Today marked the 14th day that the Nasdaq/NYSE Volume Ratio closed above 1.60. As I noted yesterday, “speculators aren’t giving up” despite losing all of the breakout gains. That’s a key point to keep in mind, because when we’ve seen such consistently lopsided volume in the past, there inevitably comes a breaking point when the ratio finally closes back in more normal territory. We’ve yet to reach that point. Here’s a look at every instance when the Nasdaq/NYSE Volume Ratio closed over 1.60 ten consecutive days, along with the performance of the Nasdaq100 (NDX) over the next two months. I’ve also added the number of days the ratio held above 1.60 in parentheses. Note that the record is 28 days in January/February 2001…
Nasdaq/NYSE Volume Ratio >1.60 Ten Consecutive Sessions
06/12/09… Nasdaq100 -2.4% open (14 days)
10/31/08… Nasdaq100 -10.0% two months later (14 days)
05/10/01… Nasdaq100 -7.7% two months later (10 days)
04/25/01… Nasdaq100 -3.5% two months later (10 days)
03/05/01… Nasdaq100 +0.1% two months later (11 days)
01/22/01… Nasdaq100 -38.9% two months later (28 days)
12/21/00… Nasdaq100 -7.5% two months later (17 days)
12/06/00… Nasdaq100 -10.1% two months later (10 days)
08/31/00… Nasdaq100 -22.1% two months later (13 days)
03/01/00… Nasdaq100 -14.3% two months later (13 days)