Saturday, February 22, 2014

CPC Put/Call Ratio Daily Chart Signals Significant Market Top

The CPC and CPCE charts were of great interest at the end of last year and as the put/calls forecasted back then, the stock market received a strong slap down in January and February. The CPC drops to a shameful 0.69 low on Friday clearly illustrating the non-stop bullish euphoria in markets. Traders fully believe in the power of the Fed, BOJ and other central banks and are confident that they can keep the markets elevated indefinitely with easy money policies. The bulls are bullish and the bears are even bullish. The green circles show recent market bottoms and the red circles show the market tops. The put/calls tend to lead with their signal providing the heads up just like in late December you knew the big sell off was about to begin any day. Here we are again.

It is very surprising to see the put/call not venture above 1.0 for months. This is very odd behavior. The complacency and lack of fear is rampant, so much so that markets are not permitted to wash out to actually create a strong bottom. Traders have 100% confidence in the Fed. Simply considering that the ratio has not moved above 1.0 would indicate a correction of from 50 to 200 handles in the SPX is a reasonable expectation. The last acceptable bottom (the CPC moved above 1.20) was back in October at SPX 1660.

At 0.69, the stock market is clearly printing another top currently. Can equities move higher for a few more days? Yes, definitely, but it appears that over the coming days or week or two the markets should place another top and the downside should begin at any time moving forward. This time the ratio will likely venture above 1.00, to 1.20, perhaps 1.30, or even 1.50. The higher the CPC moves the lower the stock markets goes. Your long shopping list should be ready to go by now but simply keep refining the selections since you do not want to consider the long side until the CPC moves towards 1.20 and higher, at which time you can scale in to the long side. Until then, staying in cash or scaling in on the short side appears a more prudent course of action. 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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