This first chart is might look weird at first because it’s the Put/Call Ratio, without the actual chart the of the indicator. I’ve removed it and left the 10day moving average to smooth out the chart and get a better idea of what is really going on. When the market topped out in late August the natural tendency would be to want to get short, thinking it was time for the markets to roll over. I don’t like to short the initial top, as it’s highly likely to revisit the top in the form of a double top or even surpass the previous top, which is exactly what it did.
Now when you look at the 10day moving average of the put call you can clearly see a double bottom forming. That in itself isn’t reason to load the boat on the short side, but it definately is reason to only daytrade these markets as we can drop hard at any moment.
We’ve seen this sideways action quite often lately and it normally ends with a downside break. Given other secondary indicators that suggest this market is overbought, it’s likely we break in that direction once more. The trick is to be patient enough to wait until that break occurs, and then enough courage to actually pull the trigger on the trade when you get the signal.
