Thursday, October 10, 2013

CPC and CPCE Put/Call Ratio Charts Fear and Worry Increasing

The VIX options are trading at record volumes with the VIX above 20 signaling fear and worry creeping into markets. The CPC chart verifies the increasing worry with a spike above the important 1.20 level. The high CPC readings indicate that a market bottom is near or at hand. Note the June bottom at 1.40. The CPCE put/call, however, is not on board with a market bottom as yet. The CPCE would like to see numbers at 0.80-ish and higher to verify panic and fear and lock in the market bottom but it remains challenged at 0.69.

The market top in May occurred on 5/22/13 (low CPC at 0.80) and the pink box shows the first spike into fear territory. But this was not the market bottom; the bottom needed about 3 more weeks to form and was identified by the spike to 1.40 (blue box). Note that the CPCE back then was not in fear territory so it hinted that the CPC spike may be premature, and it was.  Therefore, the door is open now for a similar fractal to play out. The CPC spiked to 1.30 yesterday but the CPCE lags. Your long shopping list should be finalized by now so some nibbling may begin on a couple longs. A market relief rally may be on tap but it may not be the true market bottom in the near term. S&P futures are +13 as this missive is typed which will encourage the bulls and the idea of a relief rally. During the May-June 130 point sell off, the relief rallies (as the CPC hit the 1.20+ number) were between 20 to 50 handles. Thus, it is not unreasonable to expect a relief rally from SPX 1656 to the 1669-1692 area, but the current projection is that further market selling is ahead. When the CPCE hits 0.80, that is when you would want to be scaled into the long plays from your long shopping list. 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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