Friday, July 27, 2007

S&P 500 Bottom Indicators including Put-Call Ratio



Yes, there is a lot of information in the chart above.

Let us start with the latest S&P bottom indicator, the Put-Call Ratio or $CPC (CBOE Options Total Put/Call Ratio.) A "Put" is an option where the buyer is expecting the stock to go down. A "Call" is an option where the buyer is expecting the stock to go up. So the Put-Call Ratio is the ratio of the total volume of Put Options to the total volume of Call Options. If the Put/Call Ratio is above 1 (for example), this means that there is fear in the market and people want protect their portfolios with Put Options. This is used as a contrarian indicator, meaning when the Put/Call ratio is high, we may have a bottom. The $CPC is the very volatile red line in the middle of the chart above.

However, since the $CPC is very volatile, we want to smooth out the ups and downs. So we use the 10 day moving average of the $CPC. It is the blue line in the middle of the red $CPC line. The general rule is that if the 10 day moving average of the $CPC stays above 1.0, we are near or at a bottom.

Currently, the 10 day moving average of $CPC is at 1.12, suggesting that we are at or near a bottom.

The Black Line in middle of chart

The uptrending black line in the middle of the chart is the S&P 500 index itself, the $SPX.

The top and bottom windows in Chart

The Top and Bottom windows represent the S&P 500 Stocks that are above the 50 day moving average, and the S&P 500 Stocks that are above the 200 day moving average, respectively. I've written about them in the past.

What the Three Bottom Indicators are saying:


  1. 10 Day Moving Average of $CPC: 1.12, which is above 1.0. We are at or near a bottom.
  2. Ratio of S&P 500 Stocks above their 50 day moving average: 18%, which is way below 30% and below 20%. We are at or near a bottom.
  3. Ratio of S&P 500 Stocks above their 200 day moving average: 47.8%, which is below the 50% level. We are at or near a bottom.


Must be used in conjunction with other analysis

We shouldn't use these indicators by itself. This analysis should be used with other aspects of technical analysis such as support and resistance level analysis.

Here's yesterday's Support and Resistance Levels. The only difference is that today, the S&P 500 closed down at 1458, slightly below the 1460-1464 resistance. Next support level is the 200 day moving average at around 1447. There's a possibility that we'll test the 200 day moving average and form a bottom there. The three bottom indicators mentioned above also suggest that we are near the bottom. If we bottom there, then we would have finished an ABC Correction (possible scenario predicted in early June 2007).


Today's Chart with all the info above

1 comment:

Niznusan said...

Thank you for posting this on stockpickr! You are really helping a lot of people get educated my self included