Stock Market Analysis

Thursday, May 20, 2010

Market Turning Around?

The Dow retreated 66 points today as the dollar continued to move stronger against the euro and the market continues its post flash crash turbulence.

No doubt, the intraday volatility today continues to exceed the Dow's normal average true range, suggesting that the turbulence caused by the 6 May flash crash has yet to settle. Of course there are other macro economic factors contributing to the largely pessimistic trading mood today. Even though we are no longer in a market where the market needs to go upwards in order to produce a profit, it is still interesting to see if the market is going to turn around.

I certainly think that the weekly 30MA is going to hold up as support and that the market could end up higher over the next few days due to a huge surge in total equities put call ratio today (See Put Call Ratio Daily Chart. Put call ratio today surged over 20 basis points to end up above 1.4, suggesting a rush into put options. However, as a contrarian indicator, whenever the put call ratio should make a significant move in one direction like it did today, it is usually a sign that the market is going to turn around. In fact, the last time the total equities put call ratio hit such a high was back in late 2008 just days before the market bottomed out and started turning around. I don't see why with such a strong support level and storng intermediate as well as primary bull trend in place, it shouldn't be the case this time round.

For now, the Dow remains in a short term neutral trend (within an extremely wide and volatile price channel), intermediate bull trend and a primary bull trend.

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