Market close May 7th summary

The Volume on the pullback today beat yesterday's volume. That is good news for those of us who have been waiting for this pullback. The Put to Call ratio in the first half hour hit a low of 0.56 and it closed at 0.80, while the VIX Index was 33.44 at the close. Finally the market acted rationally for a change. The Dow closed at 8,410, down 102, the S&P 500 closed at 907, down 12 points and the Nasdaq closed at 1716, down 43 points. So most likely this pullback has more pent up steam so I would not be surprised with a drop tomorrow on news of the Unemployment rate, combined with the Stress test results which should be released in 30 minutes from this posting.

I did not sell FAZ today and am still holding all my TZA shares. TZA gained back 6.6%, closing at 27.83/share and FAZ gained 8.2%, closing at 5.67/share.

You will notice from the 2 charts above the following:

When in the top chart the VIX Index started to really go up it was a signal to sell. The market started to go erratic around October and had 2 peaks, one in November and the other in December. But since then this Index has retreated back to the level where the rise started.

In the second chart the Put to Call ratio has settled down to the levels consistently not seen since mid May, and it has even gone to new lower levels most recently. While not at the very lowest levels I have seen over the years, if it continues to drop It will be flashing a very strong sell signal. Back in the rise of the market in 1999 and 2000 the Put to Call ratio hit the 0.30 level, which signaled the big selloff in the Dot.com bubble. While we have a long way to go to get to those very low levels, I will continue to watch this indicator for any signs of a major selloff. Remember, very high levels of Put to Call ratios is often a signal to be buying and low extremes to sell. This is why I put red lines around the most recent ranges of this indicator.