Sunday, May 22, 2011

Put to Call ratio for 2011 in focus

I thought today I would show a chart of the Put to Call ratio for all of 2011 with special focus on last week's movement. The chart below indicates this past week's movement in blue. The put to call ratio is an important indicator for me as it often indicates the best time to buy and sell stocks.

The reading on this past Tuesday of 1.15 had not been hit since March 16th, when the ratio hit a high of 1.18. You can see from the Dow chart of March 2011 below, that on March 16th the market hit a low and then then within 2 days started a rally. The data point was actually a Buy signal, if you were paying attention that day. From that point, the market rallied a minimum 7 % to this past Tuesday or if you sold a little earlier with a gain of 1000 on the Dow, you would have made a profit of 8.6%, which is very good in only a few months.

Now looking at where we are on the Dow chart below for the month of May, you will see the Dow's action for this past Tuesday the 16th, when the Put to Call reached a high of 1.15, that the chart pattern for the last 3 days May 18th-20th is different than that of March 16th in the chart above. I would look for another drop in the market this week going below the May 17th low. We shall see if the phrase "Sell in May" comes true!

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