andrewunknown

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

INDEX:SPX   S&P 500 Index
1078 6 3
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Thanks Andrew - any thoughts as to CPC being confirmed by both CPCI & CPCE yesterday as well?
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andrewunknown DuncanParker
3 years ago
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.
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andrewunknown andrewunknown
3 years ago
Chart of these here: https://securecdn.disqus.com/uploads/mediaembed/images/615/5984/original.jpg
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DuncanParker PRO andrewunknown
3 years ago
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.
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andrewunknown DuncanParker
3 years ago
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:
The Equity Put-Call Ratio Closed at .45 today. What Comes Next?


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.
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DuncanParker PRO andrewunknown
3 years ago
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.
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