I've been told that parents often have a relatively (emphasis on
) easier time raising children if they are consistent in their own behavior. In a less sensitive time, like it was growing up in the '70s and '80s, it was probably called being strict. This may be a stretch metaphorically, but I figure it's also a good idea to behave consistently when interpreting market behavior -- less gray stuff and more black-or-white scenarios -- which is why I find using indicators helpful. Indicators present the evidence strictly in each environment regardless of the "new age" interpretations that some promulgate.
So, with this metaphor in mind and literally
talking about a "potential bottom," I thought I could continue interpreting two indicators strictly and look at Monday's action in light of other important bottoming periods. Here's what Monday's internal
New York Stock Exchange
numbers looked like for advancing and declining stocks and advancing and declining volume:
Here's what internal NYSE numbers looked like during other bottoming periods.
It's not too hard to see that Monday's action, while impressive in terms of price percentage gains, was not emblematic of bottoming action when market internal data (as measured by NYSE breadth and volume data) are considered. I know history never repeats in detail, but the data presented here are a pretty good estimation for what needs to occur before talk of any attempt at a bottom becomes more serious. Besides, bottoms are processes, not events, and when one does occur, it won't likely be easy to identify.
Because I've heard that bull markets climb a wall of worry, I would've expected Monday's action to be greeted with some skepticism. If it had, there probably would've been some staying power. But the
call ratio (which I use as a contrary indicator) showed a sharp drop, suggesting investors are desperate to embrace any attempt at a rally because of their continued and unfailing desire to buy the low.
My numbers show that puts fell to 53% of calls Monday, compared with 120% of calls Sept. 20 and 121% of calls on Sept. 21. I also follow put/call numbers for a bunch of big-cap, liquid stocks and found investors were quick to embrace the possibility that Tuesday's bounce was the beginning of something much bigger there, too. For example,
call volume was more than 5 times put volume.
call volume was more than 2.5 times put volume, and
call volume was nearly three times put volume.
I still think rallies are to be sold, and I don't believe that Monday's activity or the action from Friday suggests anything more than a bounce in a major downtrend. The evidence presented in the above table and the put/call information tell me that it's still a very good idea to stay defensive/cautious.
John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send it to