Market internals: McClellan, CPCE, ZBT study suggest bottom close or in.

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8/2/2014, 12:35pm PT


Time again to look at the market internals. Here I present a study of the McClellan oscillator going back 2 years, CPCE (put/call ratio), going back 3 years, and the Zweig Breadth going back 2 years.

1) Over the past 2 years, each time the McClellan Oscillator has closed on a daily basis outside its lower bollinger band: 17 times, the market in 13 out of those 17 times bottomed (green vertical lines and green numbers). There were only 4  times that the market bounced, found a lower low soon after and then went back up (red annotations).  Hence, based on these odd of 13:4, one could argue a meaningful bottom is in place. (click to enlarge)


nymo 08022014

2) the CPCE (equity put/call ratio) is at a 3 year high. Only in August of 2011 during Primary II did this ratio peak that high. The other time was during intermediate ii of Major 3 of Primary III. (See red vertical lines). In my book, this means people are too bearish and -at least- the past 3 years have shown the market would go higher soon after, but not immediately. (click to enlarge)

cpce 08022014

3) The Zweig Breadth is now well below 40, which coincides with bottoms over the past 2 years. Note how the ZB “hooking” (white circle on the right), this was also observed November 2012. Although this is not a direct indication the market will instantly rise, it does show it’s much closer to very meaningful bottom than a top. (click to enlarge)

zbt 08022014

Hence, overall the odds tells me a meaningful bottom is likely close or in.




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