Monday, May 27, 2013

CPC Put/Call Ratio Versus SPX Daily Charts

The CPC put/call ratio jumps to above 1.20+ on Friday signaling a whiff of panic and fear in the markets not seen for one-year's time. The Fed and BOJ must be losing a bit of luster. The CPC matches the areas where the May-June 2012 and October-November 2012 sell offs occurred and where the market bottoms occurred due to excessive panic and fear. Oddly, it sure did not feel like panic and fear on Friday, it was more of a pre-holiday 'let's start the weekend' vibe trading session with very low holiday volume.  Volatility would be expected to jump higher with the CPC but alas, the VIX dropped to close at 13.99, under 14, the opposite action. Also, there were a couple large put buyers that must be hedging their portfolio's that likely helped catapult the CPC.

But fear is fear and despite the holiday cheer, the CPC says there is a whiff of concern wafting through the air now, perhaps the JGB yields providing the worry. The CPC 1.20 level and higher is a time to start considering scale-ins on the long side, however, the markets are coy right now, for the next couple days, and not tipping their hand. The holiday-shortened trading week may prove quite dramatic. Will a bottom occur at this 1.2-ish level like the February and April lows, or, will the CPC keep moving higher to ratchet up the fear and panic for real, which of course would be in concert with lower equities? Note the dots that show the SPX not printing the bottom until June 2012 when the CPC topped two weeks earlier. The same behavior occurs at the November bottom. Also of interest are the pink boxes. In May 2012, when the CPC jumped above 1.20 that only signaled the half way point lower for the SPX. Price dropped about another 90 handles afte rthe 1.20+ was printed. The SPX is at the same spot now, one year later, at an inflection point where the bears drive markets lower, under 1600 perhaps to print a negative month for May, or, the bears wimp out like the February and April bottoms.

Considering that volatility does not confirm the put/call negativity, and that the pre-holiday light volume and skewed heavy put-buying may have helped create an additional push higher for the CPC, the bears should be given the benefit of the doubt at least into the first half-hour of trading tomorrow morning. The coming days may be quite dramatic for markets. 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.

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