Monday, August 18, 2014

CPCE Put/Call Ratio Daily Chart Signals Near-Term Market Top At Hand

The bulls are running again and complacency remains in the markets. Traders drink the Fed wine each day toasting Chair Yellen as they buy stocks blindly with easy money. Too bad the other half of the country that does not own stocks cannot enjoy the obscene fun. The relief rally since Friday, 8/8/14, at the 1905 bottom has provided a great opportunity to rape more upside courtesy of the Fed. The move above 0.80 shows that fear and panic was entering markets to create the market bottom. Russian President Putin said he wanted a peaceful resolution to the ongoing Ukraine civil war which was the catalyst off the bottom.

The red circles show important market tops and the green circles show important market bottoms. Complacency is represented by the red circles where traders are not only sipping the Fed wine but they are all out drunkards, staggering around the trading floor buying any stock with a heart beat. This of course indicates a market top from a contrarian perspective which occurs. The green circles represent traders that are beginning to worry about how far the market will fall. Some traders panic and begin opening windows preparing to jump (hopefully it is only a first-floor window) throwing overboard any long position in the portfolio they can click. Of course from a contrarian perspective, fear and panic creates a bottom which occurs.

The CPCE chart shows that above 0.72 marks a significant bottom where longs can be nibbled on and the bullish side played. A move under 0.50 indicates a significant market top is in place or forming within days where bringing on shorts is prudent. The red circles result in the following drops in the SPX; 30 handles in 3 days, 20 handles in 2 to 4 days, 40 handles in 4 days, 30 handles in one day, and 85 handles in 10 days. The average is about a 40 handle drop in 4 or 5 days. However, the nature of the markets may lead to more of a repeat of the latest downdraft of 85 handles in 10 days, or more.

Equities should top out either tomorrow or probably by Wednesday where about 20 to 50 handles of give-back would be anticipated. If the CPCE drops further, that shows traders becoming even more complacent and worry-free which will result in a firmer top and a stronger fall from grace. The bullishness is rampant today on television and in print. Watch your wallet. 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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