OT- A couple of weeks ago, you asked me a question about price/volume utility in assessing the market. A similiar question was put to Dick Dickson, Technical Analyst at Scott & Stringfellow. His answer:
"In assessing the condition of the market I find that sentiment and price/volume activity are the two most valuable indicators I use. For the short-term the equity-only put/call ratio is probably most useful and gives the most reliable signals. As is the case with all sentiment indicators, the put/call ratio is most useful at an extreme. For example if the market has been rallying for an extended period it is not unusual to get very high readings, showing a high percentage of calls being bought versus puts. This can be considered normal. However, if the market should suddenly suffer a brief decline and the ratio stays very high, that is usually a good signal of complacency or over-optimism on the part of short-term traders, and such, offers a useful signal. For the intermediate to longer-term I use the percent bears in Investors' Intelligence. A very low number of bears, below 20% for instance, in a market that has enjoyed a major advance, is probably a pretty good sign of an impending top. Likewise, insider activity is also a useful guide for the intermediate to longer-term outlook. A very high ratio of insider sells to buys is also usually a good early warning of an impending market top. For the most part these sentiment indicators are relatively blunt instruments in timing tops and bottoms. They serve more as warning signals that a top or bottom is likely developing. For timing I use simple price/volume relationships. Buying and selling climaxes would be a couple of examples, or a breakdown from a prolonged trading range that displays signs of distribution. In 1987, for instance, there was a surge in price on extremely heavy volume about two weeks prior to the top in August that seemed to indicate that all the reluctant buyers had given up waiting for a pullback and just decided to jump in. The result was an apparent buying panic that developed relatively quickly into a major top. So for me price/volume activity that indicates distribution plus extreme sentiment readings equals a top."
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