THE NEXT LEG DOWN WILL BEGIN ONCE THIS INDICATOR FALLS IN LINE
One word: Sentiment. There are still too many bears to reward them with a decline to the October lows. I will illustrate my point with the charts below.
What should be noted is that the markets don't necessarily need to skyrocket in order for bearish sentiment to subside. The market can also resolve sentiment by moving sideways for a period of time. In this case, that is exactly what I expect. A range between 1210-1320 into December and possibly January.
The charts below are moving average only charts of the combined put/call ratio. I use moving averages only to smooth out the daily spikes, which amount to noise on the chart.
As reference points, I have used the fakeout moves that I outlined in yesterday's posting. You will see a clear pattern emerges in order for the market to experience a top:
click chart to enlarge
Put/Call Ratio vs. S&P 2001
Put/Call Ratio vs. S&P 2002
Put/Call Ratio vs. S&P 2011
