10 Day Put/Call Ratio Average and Updates

First, the SSO trade and the QLD trade are still active. SSO tested last weeks lows but did not close beneath them. The short-term model is still very near oversold.

I would take any short-term long side trading with caution. The 10 day equity put/call ratio is at an extended low point relative to statistical averages in recent months. This indicates too much complacency. This is one of the simplest and best contrary indicators in my book. Sentimentrader.com plots 5, 10, and 21 day moving averages and standard deviation bands on the same chart. I like that methodology because it will account for longer term trending in the data to highlight relative extremes. I used to just create my own charts on Excel and look for both absolute extremes in the data, and also look for crossovers of the 5 and 21 day averages to indicate intermediate trend change. The short of it is, that this indicator is sending a warning, and the break of the rising wedge pattern off the July lows is another warning that upside potential may be limited. Also, Investor's Business Daily notes several distribution days in the Dow since the recent follow-through. Historically those are not the most successful rallies.

Also, the DMI indicator is used to track trending versus non trending price action. It has not signaled a new uptrend during this rally yet. That indicates to me that this is just counter-trend corrective activity before the next declining phase.

A number of Dow 30 stocks are showing patterns that I would short or buy puts on. Two that look very good are DIS and DD. I would expect the July lows to be broken to the downside.

Pete