The Put to Call ratio on Nov. 5th was a sell signal!

As it turns out, as I said on my Blog back on Nov. 7th, the Put to Call ratio hitting a 7th month low back on Nov. 5th, was a sell signal. The stock market has been steadily dropping since then. In the first few days, the drop was modest and as each day in turn has elapsed, the drop has picked up speed. As is shown again below, the Put to Call ratio had been the signal back at the lowest blue point on the chart, on April 14th. The Dow closed that day at 11,123 and then it rose to the peak you see on May 20th. The Dow on May 20th was at 10,068, so you can clearly see that the low point was a sell signal for the Dow and other indexes. It had dropped over 1000 points.

The Dow chart below shows the movement so far. Note also on this 3 month Dow chart the number of Hammer Candlestick patterns which have occurred in the past 10 days.

The timing of this trough of selling is coming because of the looming decision many must make in the next 45 days as tax decisions and planning are going to force more selling. Why you ask, because the Bush Tax cuts are set to expire on Dec. 31st and it looks right now that Congress is not going to extend them because they can't get Republicans to compromise and allow it to be only extended for those making $250,000 or under. If you are a Republican, you want it extended for the wealthy too and that's the compromise they want Democrats to make. In either case nothing is going to be passed most likely before year end. That means folks are going to take profits now and that means selling pressure all the way up to Dec. 31st as it is a more favorable Capital Gains tax now than after Jan. 1st. It makes perfect sense and needed to take place after the election, when the results were known. The Democrats don't have the votes in the Senate to get something passed just for those make $250,000 or under, so the fighting and posturing will continue. It is a rich man poor man argument. What side are you on? Or have you fooled yourself and think by allowing them for all jobs will be created? I doubt that because jobs haven't been created in the Private sector for 9 years now and the tax cuts have been in place that long. Try another argument!