Technical Analysis: Still Too Many Puts

Once again, high opening equity put-call ratio readings emboldened traders to buy the dip. It’s always a warning sign when the equity PC hits an extreme too early in a move. As we’ve been saying for some time, the biggest supporting factor for the market is the puts just below it, and equally restrictive are the calls right overhead. Three straight dojis on the S&P and banks (first two charts below) could mean a bearish “tri star” pattern, and to some extent on the Transports (third chart) and Nasdaq (fourth chart). For that pattern to work, however, stocks would need to head down and stay down tomorrow. With a negative employment report a given at this point, traders could once again buy the dip, particular if put volume is once again too heavy at the initial 10 a.m. reading. Resistance is 1485-1520 on the Nasdaq, 927-930 on the S&P, and 8522-8530 on the Dow (fifth chart). Support is 1432-1438 and 1423-1425 on the Nasdaq, 899-900 on the S&P, and 8350 on the Dow, which finally has a clear lower trendline.

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