Note the signal in July that forecasted the waterfall crash two weeks later. Extreme caution is warranted in these markets, stay on guard, especially for an overnight event which may cause a gap down open, thus, any long players that enjoyed the ride up will give back a chunk of coin on a gap down opening, and short players that wanted to go short will be too late if the shorts are not placed at the prior days close.
Since the CPC forecasts a market down turn at any time, watch the SPX:VIX 68 level, and the SPXA150R 80 level, to help verify the start of a broad market slide. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your finanical advisor before making any investment decision.
Why do you use CPC rather than CPCE?
ReplyDeleteHello Tony, over the years all of Keystone's archived data follows the CPC, and it seemed to be the best depiction of the trading 'fear'. There is the index-only ratio and the equity-only ratio (CPCE). The CPC combines the two together, hence, the 'total' put/call ratio.
ReplyDeleteThe answer is that you could use the CPCE. If you bring up the chart you can see the signal for the August crash occurring in July at the 0.52 low. Also study the October market highs that occurred as the CPCE printed the low 0.50 and 0.51 prints. Note the extremely low 0.47 that printed days ago signaling the same complacency in place as the CPC now. Thus, the same general theme exists, a low CPCE or CPC are both showing complacency and traders that have no fear or worries--typically when the markets reverse and sell off.
Thus, you can use the July low for the CPCE as your trigger and any reading under 0.52 would be indicating that a broad market sell off is at hand.
Keystone prefers the CPC with the 0.70-ish numbers indicating a market top and the 1.20 and higher numbers indicating a market bottom. The VIX is used as a fear gauge as well with low VIX values, say from 8 thru the mid teens indicative of strong bull markets while spikes in volatilty above 30 indicate excessive fear and that a market sell off in progress should be ending, especially above VIX 40.
One additional item to consider is to weigh the behavior of the CPC heavier when deciding when to short the broad markets and conversely, weigh the behavior of the VIX heavier when deciding when to long the markets. For example, the CPC, now at the 0.7-ish readings indicating that a market sell off is at the doorstep but looking at the low VIX, it does not tell you much. Volatilty is low but it is hard to distinguish a useful signal level from the VIX.
Now when the markets are selling off strongly, the CPC will be rising higher as traders turn more negative increasing bearish bets, and a market botom is marked as CPC moves above 1.20. This is sketchy, however, since the market bottom can occur anywhere from CPC 1.20 to 1.50, or higher. But the VIX, when it takes its wild spikes skyward indicating market chaos and panic is ongoing, a move over 30, especially 40, in the VIX has traders cycling out of the short plays and moving into long plays since a market bottom is at hand. Thus, the CPC is more useful in identifying market tops while the VIX is more useful in identifying market bottoms.
Also, looking at the CPCE again, a level of 0.90 or higher appears a useflul level to signal when to go long. Study the charts of the SPX versus the CPC and CPCE for further insight. Hope this helps.
Yes, it helps a lot. Thanks for the detailed explanation.
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