The two best indicators for the market are price action and volume. I often refer to them as the king and queen of indicators. Other indicators can give a glimpse of what is going on below the market surface and give us an indication of big moves that are brewing. The two most reliable for understanding future price movements are the put / call ratio and the McClellan oscillator, which displays latitude readings.
Consult these indicators for future price movements
The put / call ratio gives a rough idea of where traders place their money bets in the market. Though it’s great to know Yes they buy puts or it looks like everyone is loading onto this one namewhat is often lost is the time frame. Perhaps these puts were a routine purchase to protect portfolios. Traders may see some serious downside moves ahead. You might be wrong, but if the volume is high then it is likely that these purchases will be heavily convinced. The put / call ratio is often a good indicator that the trend is about to change direction.
The McClellan oscillator (MCO) shows a different view of the market – breadth. Width is extremely important and often cumulative. The MCO shows the number of emissions that are increasing or decreasing on a trend basis. It also shows sharp shifts in sentiment in the indices, known as the breadth thrust. This oscillator has been around for about 50 years and often tells us when the market is extreme. Overbought levels should be sold while oversold levels should be bought aggressively.
What the indicators are telling us now
Recently the put / call ratio and the MCO flashed huge red warning signs. The indices were now at or near record highs. The indicators said the market should be falling, but unfortunately they don’t provide timeframes. However, if you heeded the warnings that had been blinking since the beginning of July, you might have saved yourself from losses that accumulated between July 15th and 19th. Within a few days, the indices lost 2-3%.
As I said above, price action is always the most important indicator to follow. When supporting indicators are out of sync, something is wrong and cracks can occur. This time it was the market. It only took a few days, but enough to give everyone a chill.