Technical Analysis: PC Ratio Gets A Little Toppy

If not for options expiry, today’s .40 close on the equity put-call ratio would have us worried. But if the low readings continue next week, it would be a warning sign. The market topped out a day or two after May expiry the last two years; will we get a threepeat? Sell in May and go away, is the old Wall Street saying, although the major indexes have yet to give MACD sell signals, historically a warning sign at this time of year that seasonal weakness has begun. There is quite a battle going on in the market here, with the S&P and Nasdaq (first four charts below) just below some major resistance. Markets have historically bottomed in the mid-term year of the four-year presidential cycle (2002 in this cycle) because of the aggressive stimulus that incumbent administrations attempt in the pre-election and election years. And this year has been no exception, with a stimulus plan by the Bush Administration and some amazing talk from the Fed, including discussion of the “electronic printing press,” allowing banks to provide corporate junk as collateral on zero interest loans, and intervening in the bond market to drive long rates lower. We may not have had the sentiment necessary for a cyclical bull market, but the stimulus is certainly there, and above 957-965 on the S&P 500, 1600 on the Nasdaq, and 8932-9077 on the Dow, the long-term picture would begin to favor the bulls. The S&P has support at 937-942 and 930, and resistance at 948-950 and 954-957. The Nasdaq would break one uptrend line with a down day on Monday, and 1521 is next support below that. resistance is 1550-1565. The Dow (fifth chart) has support at 8670-8675, 8522-8530 and 8500, and resistance is 8750 and 8830. The Russell 2000 (sixth chart) took a big hit today; an important chart to watch.

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