Tuesday, December 17, 2013

CPCE Put/Call Ratio Weekly Chart Signals Significant Market Top

Time to play the violin again. We have been watching the put/call ratios with great interest over the last 6 weeks or so. The multi-year low print in October forecasts trouble ahead for equities and it is surprising to not see the broad indexes far lower. The outcome does not change. The Fed and BOJ central banks have created the Fall rally action in equities. This is likely epic market action occurring now and most traders and others are whistling along without a care in the world. The low CPCE readings prove the rampant ongoing complacency. In fact, fear and panic are on a milk carton for a couple year's time. Boy, are they in for a rude awakening. The rally off the 2009 bottom is now near 5 years long, an extremely long rally by historic standards. 

The VIX climbs over 16 yesterday, which is interesting in itself since both the SPX and VIX were higher, so one of them is wrong. The higher volatility shows that traders are seeking downside protection but overall, the put/calls show a continuing relaxed mood about the market since the Fed has stocks cradled in its arms, thus, no need to ever worry about any serious selloff. Projection is for a major market top to be in place now or finishing up over the days and weeks ahead. A drop of from 100 to 250 SPX handles (-5% to -15%), or more, is not an unreasonable expectation moving forward. Throw any long stock overboard that you are not willing to hold for a few years forward since this may be a multi-year top.  Continue refining your long shopping list and do not enter the market long until you see the white's of their eyes with fear and panic. It may take patience for a few weeks. Slowly scale-in to the long side at CPCE above 0.9, then buy a little more long at 1.00, and so on. Thus, the short side is favorable moving forward for the weeks, perhaps months, ahead. 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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