- We're oversold. The put/call ratio is once again on the rise, as it was in May. Since this correction began, volume has been lighter than it was. The three major averages are still holding fast to their respective support levels: 9000 for the Dow Industrial Average, 975 for the S&P 500 and 1600 for the Nasdaq.
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click here for a free trial. First, let's summarize the bullish argument: Typically, going from a big oversold reading to a big overbought reading in a very short period of time is considered bullish. At the least, it means that the market will rarely go from being extremely oversold to extremely overbought and then come immediately back down to oversold again. Instead, it tends to oscillate around that overbought level, making several attempts at rallying and at making higher highs. More often than not, we end up with a market that takes the averages to a higher high while the oscillator doesn't make it to a higher high, eventually giving us a negative divergence. If we go back to the October low, you can see we went from an extreme oversold reading to an extreme overbought reading in a matter of 10 days. In that same time frame, the S&P 500 went from 775 to 900. For the next three months, the oscillator barely got below that zero line -- and the S&P stayed in a trading range as well.