Oh Canada

There's been a spate of articles on Canadian banks this past week -- perhaps that's a sign to sell. But here's a look at the market capitalization of North American banks from Yahoo Finance. RBC is number 3, while TD and BNS are numbers 6 & 7. For some reason Bank of Montreal doesn't show up on the list, but their market cap is about $12 B, which would put them tenth spot.

Looks like we might rally for a bit

Vix is a pretty reliable indicator of whether equities are in an uptrend or a downtrend. In particular, when Vix is below its 20 dma, the markets usually are rallying. Today, Vix once more broke below its 20 dma, and by the looks of it, Vix is heading lower (top panel).

The equity-only put/call ratio (CPCE) confirms this viewpoint. The 9 EMA of the put/call ratio after rising last week, appears to be heading lower, which is bullish for equities (blue line, second panel).

I've picked up another technique for utilizing the CPCE to mark intermediate tops and bottoms from Cobra's Market View. It involves drawing descending trendlines from highs in the CPCE (which correspond with lows in equities). After these highs in CPCE, the markets tend to rally, leading to successive lower highs in CPCE and hence the descending trendline. When CPCE finally breaks above this trendline, that marks an intermediate-top. The technique appears in the second panel, with the raw CPCE as the grey line. Also, the technique only works with closing CPCE numbers; intraday spikes don't count. For a better explanation of the technique, see Cobra's post.

Both Vix and CPCE are presently suggesting that equities are rallying. This picture could change with one hard day of selling, but till then, I'm long.

I would like to see the Yen weaken, but Treasuries have been selling off, and that is also supportive of equities.

CPCE analysis -- is the top in? is the bottom in?

This is in response to a nifty put/call ratio analysis presented by the Financial Ninja. His analysis uses the CBOE put/call ratio and suggests that a top is being put in, not a bottom.

I prefer the CBOE equity-only put/call ratio, which I think might give a truer signal of traders intentions. I've repeated The Financial Ninja's analysis using the equity-only ratios ($CPCE on Stockcharts instead of $CPC).

Like the Financial Ninja's method, this method does a good job of identifying the majority of tops and bottoms since 2007. A closer comparison of the two ratios might suggest one or the other is better a picking up a couple of the highs and lows around the turn of 2008.

The real difference in the methods, however, is the $CPCE is not let looking like it will call a stop (it's close, having started to turn over, but its not quite there).

I'm not sure which indicator is more accurate, although I am partial to the equity-only put/call ratio