There were high Put/Call ratios on Thursday. Just because we have high P/C ratios does not mean that the markets have to move higher -- it only means that we are reaching extremes of sentiment which have supplied a potential fuel for some upside. Back in September there were excessive P/C ratios four out of the five trade days in the week ending Sept. 21; those truly excessive readings did not in and of themselves stem the selling. We will need to see prices demonstrate the ability to move above resistance levels as a sign that buyers are interested and that bears will be forced to cover.
If the Nasdaq moves above the immediate resistance at 1655-1672, then some short-coveing is taking place, but the real short-covering will not come unless prices can exceed the 1685-1697.03 level (even though there is still an older focus of resistance 1696-1718), bears who have established shorts in the past few trade days will feel the heat and cover.
If the S&P 500 prints 1092 or higher, then there is short-covering taking place and I would expect higher prices. The immediate resistance for the S&P 500 is 1087-1096.77.
If the Nasdaq spends more than three or four minutes below the 1626 level without attracting buyers then the downside risk opens for a test of the next layer of support which is 1607-1558. This would also be a set-up for an intraday reversal from lower to higher, or, if the index can't turn itself around intraday, it would be a set-up for a capitulation on Monday morning.
If the S&P 500 undercuts 1053 for more than 4 minutes without attracting buyers then downside risk opens for a test of the next thin shelf of support which is 1020-998. Cherney is chief market analyst for Standard & Poor's