The 21dma (21 day moving average) of CBOE Put/Call Ratio is an excellent indicator for judging the reversal of the long-term trend for the stock market. Adam Hamilton laid out the nuts and bolts of the line in his latest article. [READ]
On June 4, 2004, the 21dma line cross above the unseen level of 1.0 (Put volume equals Call volume) in addition to breaking its current downward trend. Many stock technicians quickly made various predictions and calls (they are mostly reactionary) for the bulls and bears regarding the event. As you can see from the chart on the article, there were five other anomalies (96, 98, 00, 01 and 02) in the past. Of the five, three quickly fall back to its trend at the time, and two represented a trend reversal. Although all the previous spikes always coincided with the like of market corrections, the recent one didn’t. I am not sure what I should make of that -- anomaly of an anomaly?
To the bulls, this is just another anomaly that will fall back to its overall downward trend. To the bears, this is a sign of 21dma shifting momentum, and starting a new bear-confirming upward trend.
Since I am on the sideline with the wait and see attitude (21dma of Put/Call ratio is also a long-term trend indicator, not a short-term one), I am waiting to see how the next 90 days will turn out in order to draw my final conclusion of 21dma's latest rebellious move.
The markets were up big today with diminishing volume, as if lesser greater fools are trading amongst each other now.
posted by jason @ 2:30 PM
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