At 2.69 I don't think I recall this ratio ever being higher. I first made mention of this indicator right near the peak of the rally in mid June when it hit a day reading that was almost as high as the level reached at the peak of the bull market in October 2007. Now...gulp...the ratio is HIGHER than it was in mid October 2007! And the fact that this indicator is hitting record highs in the face of market weakness makes it even more of a bad omen. I am now seeing a cluster of spikes of this ratio reaching 1.9 or above during the past 3 weeks. Prior to now, during the past 2 years these "cluster spikes" occured 4 times: most of October 2007, early-mid May 2008, most of August 2008, mid-late Oct 2008. During all of these periods the market was forming notable tops which were ALL followed by nasty drops in the market. Keep in mind, the market didn't fall apart right away at the first sign of froth but after 2-4 weeks of the initial froth, it did. We are now in that same danger zone.
Does this mean we are going to see massive drops like we did following the periods I just mentioned? Quite possibly yes, but not neccessarily. In bear markets, greed/froth, such as what this indicator measures, gets punished severely because the natural evironment in a bear market is fear not greed given that fundamentals are deteriorating. In bull markets, investors don't get punished as much for being greedy (until the very end of it) because optimism is the natural emotion. Therefore, it could very well be the case that the market has a much milder decline this time around compared to the prior 4 periods I highlighted. That's of course we are assuming we are in a bull market. Only hindsight will allow us to know for sure.
Thus, for now it is safe to assume in my opinion that any rallies from here will be quite limited, i.e. won't exceed the high put in June. It also safe to assume that we haven't seen the low point yet of this decline. Be advised like I said before that the market isn't going to make things easy for the bears to captialize because bears by nature are weak handed. Expect to see plenty of headfake rallies and declines to create maximum frustration.
The topping process could very well last another week or 2. I suspect we could see break down of this widely followed head and shoulder's patter to about 880-875 or so followed by a vicious snap back to 900 but that's just a guess. I'm taking things 1 day at a time.
I should also mention that this is only 1 indicator (although quite a reliable one) that is screaming bearish....it's a mixed bag with the host of other indicators I follow which is why I'm taking things 1 day a time for now.
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