Here’s the latest chart of the 5-day average equity put:call ratio. Option markets have done a lot to correct the historic extreme in complacency that we saw in April.
Stocks are still only moderately oversold on a daily scale. RSI has made a sort of double dip into oversold territory, and MACD has also turned down to almost reach a downsloping support line formed by declines over the last 12 months. At some point this year all support should be smashed, but it would be rare to crash right from the very top. A relief rally would clear things up a lot and offer a great chance to get short.
In contrast to the US markets, look at the extreme oversold condition in several major global stock indexes.
6-month Nikkei chart:
The Eurostoxx 50 index:
And here’s a 2-year view of a bunch of emerging markets ETFs. These I suppose could keep rolling over into a waterfall, but I’m not sure we’re at that stage yet.
The winners are those groups that have fallen the least since mid-January, somewhat adjusted for their potential to decline. I view these as the least prone to violent snap-back rally right now, so this is where I am adding, conservatively, to my short portfolio:
Materials are among the big losers so far. Commodities have a tendency to fall hard right from the peak and keep crashing for months. I’d like to short here, but will wait for a better entry (which may never come).
It is also worth noting that among the world’s stock markets, the US has held up pretty well so far, along with Japan, and believe it or not, Russia. The worst markets, besides Greece (which has already given up the majority of its 2009 gains) are the “emerging markets.”
Key to chart below:
Green: Japan; Purple: Russia; Dark blue: S&P500; Orange: India; Light Green: various emerging markets; Light blue: Europe; Brown: Brazil; Red: China (Shanghai-listed stocks)
I suspect I’m going to be shorting Russia soon. It was among the very worst in 2008.