In the past I’ve discussed the need normalize the put/call ratios. I began looking at the 10/200 MA ratio after reading some of Dr. Brett Steenbarger’s research on the subject. Dr. Steenbarger used the Equity P/C Ratio and looked for stretches.
In my case I do not require the 10-day MA to be stretched from the 200-day MA. I simply looked at how the market has performed when the 10-day MA is positioned either above or below the 200-day MA.
From 8/6/1996 through 7/25/2008 the S&P 500 has gained 595.44 points. When the 10-day MA of the Total Put/Call Ratio has been above the 200-day MA the S&P 500 has gained 710.31 points. When the 10-day MA has been below the 200-day MA the S&P 500 has LOST 114.87 points. Based on this I’d consider the recent cross of the 10-day put/call below the 200 day put/call to be a negatvie.
Sunday’s Weekly Research Letter contained a study with the most bearish 1-month implications of anything I’ve published in 3 months. If you haven’t yet received a sample of the Quantifiable Edges Weekly Research Letter and would like to see this weekend’s research, send your name and email address to Weekly@QuantifiableEdges.com
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