CPC Put/Call Ratio Daily Chart Signals Significant Market Top

The complacency remains in the markets with the CPC printing in the 0.7's or lower. The red circles identify the market tops, the green circles are market bottoms when fear is creeping into markets.  The September top was significant, then the mid-November bottom where the current rally started. Since the recent tops did not have any downside oomph, the double 0.7 prints the last few days may provide the downside energy. For the last year, traders favor the complacency side of things as seen by the multiple low prints and overall activity under one. Traders know that the Fed will support and pump markets forever so it easy to stay long and not have a care or worry. At the same time, the spineless politicians will kick the can down a perpetual road, so there are no worries with political deadlines either, such as the Continuing Resolution to fund the government on 3/27/13, now only 12 days away, since the politico's will announce a solution to save the day again.

Of course complacency leads to fear and then fear will once again lead to complacency, the circle of trading. Typically, the complacency is identifiable in the markets with a giddiness among traders, however, that is not currently in place. Other markers are, however, such as joyous and bullish newspaper headlines, and also increased interest by Joe Retail about investing in stocks again. The CPC and VIX indicate that even though talking heads are waxing worry and say that a pull back is coming and needed, they are not following through with action. It is faux worry. Traders are not buying VIX protection, are not shorting stocks, and in general are simply sitting on the long side figuring that if a pull back occurs it will either be shallow and lead to new higher highs, or, if it is more extensive, long positions can be easily exited with healthy gains. The markets always strive to hurt the maximum amount of people the maximum amount. One of the possible ways would be an overnight event and a lock limit down opening bell, which would wipe out the gains for the long players. Although rare, one of these events occur every few years, so the possibility must be respected.

The red circle tops result in the following drops in the SPX; -120, -25, -50, -10, -45, -10. Thus, a wide range, the September top creating the largest drop. The -50 drop was the back half of December and the current action is very similar to late December's action. The average move down, as the CPC spikes higher, is -43. 

Very simply, the CPC says complacency continues to rule the markets despite anyone voicing concern, and that a significant market top is in place now. The pull back may be 40 or 50 handles perhaps more. Stocks are not attractive until the CPC prints above 1.2+ and higher which will identify a market bottom due to fear and panic.  Until then, it appears prudent to take profits on longs, or at least trim long positions, build cash, increase short positions, and otherwise hedge against the downside. It may be very swift when it comes surprising many with the drop and speed of drop. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.