Hope you’re enjoying/or enjoyed this Independence Day weekend.
Oil sector stocks lost enough significant support Thursday, to target a price of 75 in the future for OIH. A head and shoulders pattern from 95-115 equals a measured move 20 points below the 95 neckline.
I did think about taking a shot at ERY overnight on Wednesday, but didn’t. The ETF had pulled back seven days to it’s 20-day moving average. This pullback was the first since it’s big gap higher, and day high close.
Since I didn’t buy overnight, I bought the 5-minute high. I also bought SKF pre-market, and TZA fairly soon after the bell. Holding 50 percent of the positions into the holiday weekend played out with no significant pullbacks hitting my stops.
The levels of pessimism out there right now are a positive for the bulls. I’ve said that building a bottom is a process. Two indicators I watch for sentiment include the VIX – CBOE Volatility index and the equity p/c ratio. Watching them for extremes gives some insight to the bottoming process.
With this shocking news (BSC avoids bankruptcy by selling itself to JPM for under $300 million, when it’s stock price showed a value around $30 billion a few weeks ago!) out of BSC – Bear Stearns, the VIX spiked to 35.6. It reached 37.57 during the panic lows in January of 2008, and 37.5 in August of 2007. A chart is a chart, and this could end up being a double top for the VIX chart.
If you look back on the VIX a few years, the VIX reached as high as 45 during the strong selloffs of 2002.
The other indicator I watch for sentiment is the equity put/call ratio. I like to use the equity figures alone. You’ll get skewed numbers sometimes when the index figures are included.
The ratio has been over 1 lately. I’ve read an interpretation of the number, that says over .80 can indicate market bottoms. So when you get to 1.3 on the equity p/c it’s reaching a turning point. The longer it stays that way during the day, the better it is for the chances of a turn.
As with any market indicators, these are two tools to help traverse your way through the market, and should be used in combination with others in your trading arsenal.