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

The Nasdaq still has room to run (Stock Chart, July 12, 2007)

The US market rallied today, with the S&P gaining 28.94 points (1.91%) and the Nasdaq rallied 49.94 points (1.88%). The S&P 500 is now at all time highs, and the Nasdaq has reached a multiyear high (still below the Bubble highs from 2000).

Looking at the chart, the different indices have broken out, with Nasdaq performing very well.

In the main window, we have the three year performance of the Nasdaq ($COMPQ). In the top window, we have the ratio between the Nasdaq Index (currently at 2701.73) and the S&P 500 index (currently 1547.70). When the $COMPQ:$SPX ratio is high, that means that the Nasdaq is outperforming. When the $COMPQ:$SPX is low, that means the Nasdaq is underperforming.

This number is best used as a contrarian indicator. When the Nasdaq has outperformed too much, then the Nasdaq is at a top. When the Nasdaq has underperformed too much, then the Nasdaq is at a bottom.

In the last three years, the best time to buy the $COMPQ is when the ratio between Nasdaq and S&P 500 is around 1.65. The best time to sell, according to the charts, would be when the Nasdaq to S&P 500 ratio goes above 1.8. These ranges nicely coincide with the tops and bottoms.

Looking at todays situation, we see that the Nasdaq has broken out to new multiyear highs, and that the Nasdaq is outperforming the S&P 500. Trends tend to continue (what was resistance before is now support), and the ratio between the Nasdaq and S&P 500 is only 1.75. According to all this, there's still room to run!

If you invest in ETFs, the QLD (double the Nasdaq 100 ETF) might be a possibility. Also, since the Nasdaq is outperforming the S&P 500, Nasdaq stocks and tech stocks might be good upside plays.

Today's Chart

Follow today's chart of the Nasdaq using, courtesy of stockcharts.com:
Nasdaq Three Year Chart

Stock Chart: NYX (NYSE-Euronext) Next Support Levels (June 21, 2007)

This site has been discussing the NYX stock (New York Stock Exchange-Euronext). Previous posts here (June 19, 2007) and here (June 6, 2007).

Now the chart above looks at the next support areas. I've determined the resistance based on previous horizontal resistance and my version of Fibonacci Estimates. I have confidence in the Fibonacci Grid I created above because the Fibonacci lines also coincides with other resistance areas.

So the next levels of support (Approximates) are $76, $72, and $70.

Finisar (FNSR), a speculative under $4 stock looks like it was forgotten, but may now be poised to move upwards.

FNSR's 50 day moving average has gone above the 200 day moving average, the Golden Cross, and is a Bullish sign. FNSR is both above the 50 and 200 day moving average, and is currently in an ascending right triangle, a normally bullish formation. This pattern suggests accumulation by people as the stock moves lower, and the buying support increases each time, forming higher lows. Before the end of the triangle approaches, the stock may breakout with good volume above resistance. This would be an ideal Buy Point.

Other clues include a Bollinger Band Width of less than 0.5 which, in the past, has predicted a move in the stock (whether up or down).

The lower technical indicator is the Williams ADX Directional Movement Index. This is a trend following indictator. The Black line through the middle is the ADX. If the ADX is rising upwards, that means the stock is starting to trend. When the green line (+DI) goes above the red line (-DI), and when the green line is rising, and the red line is falling, that would be one of the buy signals. Note that great care has to be taken using this technical indicator. If the stock is not trending, using the red and green line crossover by itself could cause a lot of stock whipsaws. That's why the black ADX line is important in the system. There are many modifications to this system to reduce whipsaws.

In other words, watch out for the speculative stock Finisar (FNSR) as it may be ready to make a move upwards.

To see a real life example of a breakout of an Ascending Right Triangle, see the Chart of Hansen (HANS).

To monitor FNSR using the same metrics as my chart above, you can use this link.