Total Put-Call Ratio Down to .65? Turns Out That's Not So Scary

SP:SPX   S&P 500 Index
1106 6 3
Thanks Andrew - any thoughts as to CPC being confirmed by both CPCI & CPCE yesterday as well?
andrewunknown DuncanParker
There's something to be said for that, but it doesn't carry outside significance. First, we have to define the criteria each have to meet to "confirm": probably this involves the rate and/or depth of the preceding drop. The best of these aligning moments in the last 3 years are January 2011, January 2013, May 2013 and now. The first two did not produce anything in the way of major reversal (certainly not 01/2013); while May 2013's pullback was mid-high single digits.

Looping in the others, October 2011 and September 2012 are the clearest signals with the most immediate negative performance.

As such, I think an argument can be made when these ratios align at a low level it indicates widespread complacency and a material selloff is about to begin. But I think the argument that "the market will just shrug off these readings after a -2% tip-of-the-hat (or less) and proceed on its way" is equally persuasive.
andrewunknown andrewunknown
Chart of these here:
DuncanParker andrewunknown
You know I'm bearish (no secret to anyone at this point), but I'm trying to remain objective. Truth is I can't find a good comparison for such a low reading across the board. I do respect that it could be a contrary, contrary indicator - hard to have any conviction either way. For now, another wolf in the woods of Wolfless.
andrewunknown DuncanParker
I don't think there's an edge to a "low across the board" reading - at least, there hasn't been in the post-2009 era.

If anything, PC ratios - take your pick or take them all - are good countertrend cues; but taken in isolation, that's it. They do a pretty decent job of signaling dips and pullbacks. But, there's nothing special about the December 2007 reading on the Total PC above; or on Equity or Index that would indicate the market was about to get kneecapped. One could only say "ah, but *that* one was different!* in hindsight.

One thing I do note when plotting daily readings is they do tend to persist and cluster in the period leading up to a major top. Recall this chart from last night:

That suggests a moving average that is consistently low is more reliably indicative of "complacency" than extreme low readings. Slap a 20 and 50SMA on CPC, for example: The readings are 0.87 and 0.9, v. yesterday's 0.65 close. January-February, August, October, December 2012, February, April, May 2013 and Now all register similar readings - making these results unremarkable, IMO.
DuncanParker andrewunknown
I've heard others echo that sentiment -- makes sense inasmuch as attempting to keep it apples to apples. Regardless, it caught both our attention for a reason. This is one hell of a market to trade. Good luck buddy.
EN English
EN English (UK)
EN English (IN)
DE Deutsch
FR Français
ES Español
IT Italiano
PL Polski
SV Svenska
TR Türkçe
RU Русский
PT Português
ID Bahasa Indonesia
MS Bahasa Melayu
TH ภาษาไทย
VI Tiếng Việt
JA 日本語
KO 한국어
ZH 简体中文
ZH 繁體中文
AR العربية
Home Stock Screener Forex Signal Finder Cryptocurrency Signal Finder Economic Calendar How It Works Chart Features House Rules Moderators Website & Broker Solutions Widgets Stock Charting Library Feature Request Blog & News FAQ Help & Wiki Twitter
Profile Profile Settings Account and Billing My Support Tickets Contact Support Ideas Published Followers Following Private Messages Chat Sign Out