Thursday, 22 July 2010

12:02 BST - Options Equity Put/Call Ratio Update

On Friday 16 July the 5 day moving average of the CPCE had ticked up in an area of support, giving an early suggestion that we may be reaching a top of some kind in the market (you can see a longer term chart here). I said then that we needed to see the 10 day ma also tick up and the 5ma cross above it.

Well, we have those conditions in place now, so on past performance, there's a reasonable chance that we have seen, or are fairly close to, a top.

Here's the updated chart:

CPCE Daily:

A couple of points to note:

1) Just because the conditions mentioned have been met, does not mean that the market won't go higher - this signal doesn't necessarily occur at the precise price top;

2) note the period highlighted by the green rectangle where the moving averages got stuck under the blue line, even though the 5ma crossed above the 10ma a few times. You can see on the price chart in the window below that the market continued to move up during this period, quite signifcantly.

So, there's a reasonable prospect that a market high is in or near, based on the tick up in the moving averages of the CPCE and the cross of the 5ma above the 10ma, all at an area of prior support. However, watch the behaviour of these moving averages - if they begin to struggle to get above the blue line, it could be a warning that the markets will continue higher before a top is reached.