Put/Call Ratio Suggests a Rebound Attempt Soon

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The equity put/call ratio has spiked to a level suggesting a short to intermediate term bottom could be forming very soon.  However, with historical tendencies as a guide, it looks unlikely that whatever low may form will be the low for the correction.  Spikes away from the trend to this degree are typically in the middle or early in the trend, and when the final bottom is in place there is a divergence that forms.  Additionally the VIX closed above its upper bollinger band today suggesting a statistical extreme in the range may be at hand.  However, until the move is complete, it implies increasing volatility and accelerating price declines.

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The ideal time for a downward "flat" Elliott wave pattern to complete would be tomorrow morning. The tightest harmonic resistance zone is 133.40 on SPY.  So given the bullish MACD divergence on the hourly chart and short-term sentiment extreme, a lower low and reversal higher tomorrow may be a good time to follow the hourly chart signals on a long trade.

The flip side to this equation is that all the major indexes have confirmed potential price downtrends by retracing the recent rallies in less time than took to form.  Also, as of tomorrow with a lower low in the S&P 500, the daily ADX will be rising and above 20 with prices moving down suggesting a possible new downtrend.

Here is a guideline that I would suggest in this current environment.  The odds likely favor a rebound and a rally attempt is likely very soon.  However, if the market rallies for a day or two (or more) and then fails and moves below the current lows, the market could quickly move down about as many percent BEYOND the current low, as it already has moved down in to that low.  In the current case, say we rally a day or two, and the market has already declined 6% off the highs.  Then if new lows are made, it could quickly decline about 6% below that level.

A major battle is being fought around the 1350 SPX level, so eventually one side will be exhausted and a sharp price move will occur.  The bullish divergence suggests that may be UP.  But an initial attempt which fails, will lead to a sharp move down.