Thursday, June 19, 2014

CPCE Put/Call Ratio Weekly Chart at 3 1/2-Year Lows Signaling Significant Market Top

The bullish euphoria is off the charts. Just when the party was ending, Fed Chair Yellen shows up with easy money booze and crack cocaine to pump the stock market higher. It is shameful that Yellen cheer leads equities saying there are no asset bubbles and stocks are undervalued. My how the Fed's mandate has changed to be solely focused on creating a higher stock market. What has the so-called 'free' markets come to? It is absolutely shameful. As bad as the Fed actions are for America, the profits come easy on the long side. The Fed is in the pocket of the big banks and wealthy top 1% continuing policies that make the rich richer. The middle class and poor receive the short straw.

Television traders and analysts repeat the mantra, "buy, buy, buy!" Complacency is mentioned in media but immediately rebuffed--the exact behavior you would expect at significant market tops. If traders would mention complacency and say they sold one-half of their long positions that is a recipe for higher markets that feed off of a wall of worry. Instead, pundits wax faux worry and concern but ten minutes later are buying stocks on the long side. The stock market is actually climbing a wall of Fed easy money.

The CPCE at 0.38 confirms the bullish euphoria and complacency rampant in markets currently and signals that a significant market top is at hand, in place already, or will be in the days or within a week or three ahead.  The red circles show significant market tops where the SPX was hit by 60 to 100 handle sell offs quickly. The last low in early 2011 was the last major market sell off now three years ago. In 2011 markets eventually dropped from 1380 to 1080, 300 points, -22%. The same percentage drop would be a 430-point sell off moving forward. The SPX lost 100 handles in early 2011 and then went on to create a triple top that led to the August 2011 waterfall crash. The 2010 low under 0.35 led to an over 200-handle pull back.

Therefore, the projection is for a 100-handle sell off in the SPX to occur, say, over the next 3 to 6 weeks which may lead to a multi-month sell off that takes the SPX down a total of from 100 to 400 points. Any long position that you are not willing to hold for several years should be thrown overboard. Cash is a very smart position currently. The put/call says it is very unwise to chase the market higher. Shorts can be scaled into and increased as time moves forward and the stock market tops out. The stock market top may serve as a multi-year top a la the 2000 and 2007 tops. The SPX 50-week MA is 1796 and rising and has not been tested in about 18 months and is an easily doable downside target considering the excessive market euphoria. The low 1800's would be about a 150-handle pull back consistent with prior behavior in the chart.

The green circles show significant market bottoms that occurred due to fear and panic in markets. Buy when there is blood in the streets and as seen by the chart, the last significant market bottom was in June 2012 with the SPX at 1280; about 600 points lower. The Fed has prevented the markets from correcting for two years by running the printing presses non-stop and bludgeoning the dollar. To provide further doom and gloom in this missive, the euphoric bullish nature of markets currently open the serious possibility for a black swan event to occur at anytime and/or flash crash. Watch your wallet. Ditch some of those longs and let that dough sit in cash for a while. Go swimming; summer is here. 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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