Tuesday, May 21, 2013

Low Equity Put/Call Ratio

The equity put/call ratio has been running low the last 1-2 weeks.  The 5 day average stands at 0.52 and is extremely low relative to its recent range.

While the ratio often reaches its low prior to an ultimate price high of a leg up in stocks, this is an alert that price now may be nearing the point of a correction.  For trade management purposes I think the simplest technique to use for long trades is to have an active trailing stop in place that will allow the market to rise and even to experience volatility in line with the established trend but not greater than the largest pullbacks in the uptrend since November.

Further topping signals to be alert for are daily reversal candlesticks, weekly reversal bars/candlesticks, and weekly SAR reversal.

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