• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Internals Provide Clues to Future Price Action

When the supporting indicators are not in sync, something is amiss and bound to crack.
By BOB LANG
Jul 26, 2021 | 10:00 AM EDT

We know the best indicator to follow for the market is price action, and volume is the next big one. But other indicators can give us a glimpse of what is happening underneath the market, perhaps giving us a 'heads up' to some violent moves yet to be seen. While we can reach for a number of different indicators to paint a picture for us, there are certain ones that are very reliable. Among those include the put/call ratio, breadth indicators and oscillators.

Options are a great view into the actions of the market. The put/call ratio is a raw look at where players are actually placing their money bets in the market. What better indicator is something telling you that 'yes, they bought puts heavily'. But what is often lost is trying to evaluate timeframe. Maybe those purchases were done as a form of protection, or perhaps seeing some heavy downside ahead. They could simply be wrong, but not often when there is high conviction. The put/call ratio is a nice snapshot of money flows in options, and it is often a good lead into directional shifts.

Oscillators (McClellan, or MCO) show a different view of the market. Breadth is extremely important and is often cumulative. The MCO shows the amount of issues gaining vs. retreating but on a trending basis, smoothed for longer and shorter timeframes. This oscillator has been around for some 50 years and quite often tells us when the market is at extremes. Overbought levels should be sold, oversold levels bought aggressively. The market action played out exactly as the indicators were portraying for several days - weakness.

Recently the put/call and MCO were flashing huge red warning signals. Yet, the indices were still at/near record highs. The indicators were saying the market should be coming down, but the timing is hardly ever precise. However, if you heeded the warnings which were flashing since early July, you might have saved yourself from losses that accumulated from July 15-19 (down 2%-3%). Price action is always the most important, but when the supporting indicators are not in sync, something is amiss and bound to crack. This time it was the market, if just for a few days - enough to give everyone the shivers.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Bob Lang had no position in the securities mentioned.

TAGS: Investing | Markets | Options | Put Call | Stocks | Technical Analysis | Trading

More from Investing

ServiceNow Picks Up a New Bull on Their Shares

Bruce Kamich
May 18, 2022 11:20 AM EDT

Here's what aggressive traders could do now.

How This Bear Market Is Evolving

James "Rev Shark" DePorre
May 18, 2022 11:13 AM EDT

The recovery from this action is likely to be very uneven.

These 2 Homebuilders Offer Decent Bargains

Bret Jensen
May 18, 2022 11:00 AM EDT

Homebuilder sentiment just hit its lowest levels since June of 2020.

Does Penn National Have a 'Three of a Kind'?

Bruce Kamich
May 18, 2022 10:45 AM EDT

Here's what the gaming stock has been dealt.

I'm Diving Back Into the Dumpster to Gobble Up More BurgerFi Shares

Jonathan Heller
May 18, 2022 10:30 AM EDT

This value investor's top pick for the rest of 2022 keeps losing ground, but that isn't stopping him from doubling down on this speculative play.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login