Some of Stock Market timing technical tools are as follows:
Volatility index – Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term. While one can measure the relative volatility of a particular stock to the Market and it is called as beta. A beta of less than 1 means that the security is theoretically less volatile than the market. A beta of greater than 1 indicates that the security’s price is theoretically more volatile than the market. For example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market.
Let see an example, on the chart you can see that when S&P 500 index was bullish and around the top, volatility was low and around bottoms. See in 2007, 2008, 2010, and 2011 and in 2012, the market was at the top while S&P VIX was trading around 14 to 20 zone. While in the crash of 2007 to 2008, S&P 500 tumbled from the top in 1550 to almost 750 and VIX shoot up from 14 to almost 90. You can also see that before market’s bottom, VIX already topped out. So one can use VIX or volatility index as contrary to the market trend.
The put/call ratio – Stock Put-call ratio (PCR) is an indicator commonly used to determine the mood of the stock options market. Being a contrarian indicator, the ratio looks at options buildup, helps traders understand whether a recent fall or rise in the market is excessive and if the time has come to take a contrarian call. The ratio of put trading volume divided by the call trading volume. For example, a put/call ratio of 0.74 means that for every 100 calls bought, 74 puts were bought. It is a contrary indicator. A reading of 1.0 or more is very bullish as most people think the market is going down. When the majority thinks the market is going to move a certain direction, it usually does the opposite.
Let see a practical example on above S&P chart from 1997 to 2015 with continues put-call ratio charting. On the chart, S&P is shown by red line while CBOE put call ratio designated by a blue line. On the chart you can find, S&P 500 was at the top in 2000 and that time PCR was at 0.52 so heavily overbought and from then we saw profit booking in market and S&P tumbled from the top of 1400 to low near 800 which was almost 42% drop. 2007 top was exceptional while PCR was around 0.95 around neutral zone but was in falling mode and then we saw the crash of 2007-2008 in which S&P 500 index tumbled from 1550 to almost 750 which was almost 49% drop. While in 97 bottoms PCR was at 0.75 and S&P 500 index rallied from 800 to 1400. While in 2007-2008, S&P 500 index created bottom around 750 and PCR hit high above 1.1 and signaled perfect bottom fishing from where S&P 500 index rallied to 2200 which was 293% gains from bottoms.
Moving averages – Market timing often looks at moving averages such as 50- and 200-day moving averages which are particularly quite popular. Some people believe that if the market has gone above the 50- or 200-day average that should be considered bullish, or below conversely bearish. Moving average strategies are simple to understand, and often claim to give good returns, but the results may be confused due to retrospection and data mining. Market timing rules using classic technical analysis benefit investments and other long-term positions by finding the best prices and times to take exposure and book profits.
Let see a real example on the chart of dollar index from July 2014 to end of Oct 2015. In which we can spot that in July 2014, dollar index given long-term buy signal with a bullish crossover of 50 and 200 days moving average and hit high of 100 in March 2015. While at end of chart, averages formed bearish crossover around 94-95 zone.