Sunday, June 8, 2014

CPCE Put/Call Ratio Daily Chart 3-Year Low Signals Significant Market Top

The CPCE put/call is printing under 0.50 for three consecutive days signaling a significant market top at hand. The low print is the lowest number since the start of 2011 three years ago. The market complacency is off the charts. Why would it not be? Central bankers dance a perverted orgy spreading easy money far and wide. China continues to pump their economy with so-called 'targeted' stimulus which makes it sound like they actually know what they are doing. The Fed continues its obscene money-printing as Greenspan, Bernanke, Yellen and Dudley all conspire at the Keynesian club house. The ECB arrives at the party with fresh booze and crack cocaine as Draghi fires a mini money bazooka. He keeps the full-blown QE bazooka in his back pocket to pull out in the future. Again, why would not everyone and his bro be long the market?

Aunt Edna and Uncle Frank just took their entire life savings, including money set aside to help their children and grandchildren, and placed it all into dividend stocks this week just like the handsome and pretty talking heads told them to do on television. Now they are throwing a party that they funded with a credit card. There are no worries or concerns since markets go upwards forever guaranteed by the central bankers. It is time to par-tay. The Fed punch bowl is overflowing as drunk traders dance on table tops donning lamp shades singing that 'the stock market will never go down again'.

Of course, this peak complacency signals a significant market top in place now or within days. The red circles show all the recent market tops and green circles show market bottoms. What do you think will happen? Some of the pull backs are modest at only 15 or 20 SPX handles but this time is special since it is the lowest put/call in three years. The recent lows created two significant tops; first, to begin the year which gave up 100 SPX handles and second, the early April top which gave up about 80 handles. Thus, since the CPCE is at such an uber low, a sell off at a minimum of 80-100 handles is anticipated.

Further, going back to the early 2011 uber low complacency comparable to now, markets peaked and fell 100 SPX handles, then recovered to print the April 2011 top, the high for the year, and then crashed 300 SPX handles over a six-month period to the 1080 SPX bottom (which includes the August 2011 waterfall crash). If the uber low CPCE repeats the same fractal as early 2011, the SPX may top out in this 1950-1960 zone right now and drop about 100 handles during June. The SPX would then recover perhaps up to current highs again but over the next six-month period, into the end of the year, the SPX would travel lower under 1700.

Any long positions you are not willing to hold for several years should likely be thrown overboard. Watch your wallet. Due to the uber low multi-year CPCE (and low VIX under 11), this market sell off may have far more serious ramifications than the other pull backs over the last 18 months. A drop of at least 100 SPX handles would be anticipated during June and perhaps far lower numbers with markets sliding into a potential cyclical bear market as the summer moves along. Traders are simply far too complacent. Typically, this behavior ends sharply when everyone realizes they are swimming naked and the tide is quickly running out ready to expose their ugly reality. 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.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.