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A Strong Warning Sign Stocks Are Headed Lower

By Jeff Clark
Tuesday, February 17, 2009

Stocks are on the verge of breaking down to new lows... and no one cares. That's a bad sign for anyone still leaning bullish.
 
Last month, we threw in the towel on the idea of a strong intermediate-term rally.
 
The action in the stock market simply didn't justify a bullish stance, and I suggested selling into any short-term strength. We got that strength a few days later.
 
Today, the S&P 500 is sitting right about where it was last month, and the conditions are even more bearish. Consider, for example, the put/call ratio.
 
The put/call ratio is an indication of investor sentiment. The higher the ratio, the more frightened investors are and the closer the market is to a bottom. A low put/call ratio is a sign of investor complacency and often warns of an impending decline.
 
Of course, the ratio is volatile and it can vary quite a bit from one day to the next. So it's best to use some form of moving average to get a more accurate gauge of sentiment. Take a look at this chart...
 
 
The blue line on the chart is the 10-day moving average of the put/call ratio. The circles indicate turning points in the ratio, which also correspond to turning points in the stock market.
 
Look at how those circles line up with this chart of the S&P 500...
 
 
The market's November low occurred with a peak in the put/call ratio. The January high in stock prices accompanied a bottom in the put/call ratio. Notice, also, how the ratio peaked one month ago, right before the market put on the rally I told you to sell into.
 
The curious development now, though, is the S&P 500 is right back down to where it was one month ago, but the put/call ratio is much lower. In other words, while stocks are on the verge of breaking below an important support level, investors are less fearful.
 
That's bearish. And it's a strong warning sign stocks are headed lower.
 
Best regards and good trading,
 
Jeff Clark




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Market Notes
Top performing sectors this year... biotech (+5.4%), gold mining (+5.3%), semiconductors (+5.3%).
 
Top country indexes... Chile (+26.3%), Russia (+15.5%), Brazil (+11.4%).
 
Worst sectors... financial (-26.5%), real estate (-23.7%), insurance (-18.6%).
 
Worst country indexes... Switzerland
(-19.5%), Germany (-18.6%), Spain
(-18.3%).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%