Sunday, December 7, 2014
CPC Put/Call Ratio and SPX Daily Charts
The low CPC 0.75 put/call was highlighted a couple weeks ago so we were on watch for a near-term top due to the market euphoria and complacency. The top occurs four days later on 11/28/14, late in the day on the Friday shortened session and carried through Monday 12/1/14. The bears finally stopped the rally from mid-October and were pushing stocks lower. The global central bankers are in constant contact these days so market goosing was in order to save the day and immediately the rumor appears about the PBOC further cutting the triple R rates for Chinese banks. This allows more money to circulate into and stimulate the economy and in turn sends China, US and other global equity markets higher. The central bankers are the market. Note the CPC collapse on Tuesday after the PBOC goosing. The CPC drops to a low on Wednesday at 0.77; more complacency. Why would anyone worry about being long when the central bankers always save the day?
The stock rally continues from Tuesday into Thursday morning where everyone thought it was a done deal that ECB President Draghi would create further stock market upside fun by mentioning the upcoming full-blown QE sovereign bond-buying program but instead he lays an egg and tries to push off that announcement well into 2015 trying to stretch out more time. The central bankers must continue to stretch out time hoping for a global recovery to save the day otherwise all their gooses will be cooked. The central bankers have become well versed on these ongoing Keynesian games as illustrated by the PBOC only creating the rumor of more triple R cuts. The Chinese central bank will likely hint at this one more time, perhaps today, for further stock market goosing, then they can make an announcement that they will announce an announcement about the triple R cut, then finally announce the triple R cut receiving maximum bang for their buck. This is the global trading environment that the Fed and other central bankers have created. Traders only care about central bank actions and throw fundamentals out the window.
So Draghi dropped the ball at his Thursday morning press conference and markets tanked. European indexes collapse. After European trading closed, Draghi ran to the microphone and told everyone to forget what he said before and now he says "the QE program will be announced in January" buckling under the pressure from market forces. Global stock markets catapult higher on the news of more ECB easy money as shown by the reversal on the SPX on Thursday on the news and higher move for stocks on Friday. European indexes catapult higher in a wall to wall rally on Friday with the DAX at record highs above 10K. The CPC edges lower to end the week.
The green circle shows the bottom in the SPX created by the PBOC pumping and note that the CPC was at 1.12 elevated but not very high. Panic and fear begins at 1.20 and higher which identifies stock market bottoms so clearly market forces did not create the bottom in the SPX but instead the central bankers, this time the PBOC, created the market bottom. The blue circles show the same volumes occurring on important gap-up and selling days so it would be prudent for price to drop into the 2055-2065 area again to anoint one side or the other with strong volume and point the way ahead.
Since the CPC printed another 0.7-ish low consistent with trader complacency, another top would be anticipated for equities. If the last fractal is followed (red circle), the top occurred four days after the low CPC print at 0.75. Thus, Monday or Tuesday have potential as a near-term stock market top. The projection would be that price tops out in the very near term and retreats to the 2055-2065 where price will pivot in a more firm direction (that will have to be assessed in the days ahead). Stocks are not an attractive investment due to the complacency.
Traders are tripping over each other to buy AAPL and MSFT as Christmas presents regardless of price. The recipients will likely be disappointed at these gifts as 2015 progresses. The apple will turn rotten and the Mr Softy ice cream will melt. The market complacency can only be rung out by fear and panic and this will only occur if the CPC moves above 1.2 and higher. 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.