Saturday, January 3, 2015

CPC Put/Call Ratio Signals Near-Term Market Bottom Developing

Remember the red circle highlighted a few days ago announcing a near-term market top due to uber complacency and bullish euphoria? It occurs and stocks are spanked lower as the year changes over from 2014 to 2015. The sleigh is stuck in a roof gutter as Saint Nick frantically tries to kick start the expected Santa Claus rally from 12/26/14 through 1/5/15 that is not occurring. It is a bad omen on 'Broad and Wall if Santa Claus fails to call'.

The complacency signal a few days atgo was matched up with the SPX 2-hour, 1-hour and 30-minute charts that had peaked out with neggie d ready for a spankdown so the near-term top was an easy call. The spank down results in almost 50 handles of quick downside the last three days from SPX 2094 to 2046. It did not take long for traders to seek protection via buying puts and going long volatility. This knee-jerk behavior exhibits a quick move to panic and fear that markets will keep dropping--exactly when stocks recover (above 1.20).

The green circles identify market bottoms and the red circles show the market tops. The only question now is if another sharp and strong market rally occurs like the Oct-Dec and December rallies, or, instead a short day or two rally which will then give way to more selling that sends the CPC up even higher showing more panic but at the same time identify a more firm near-term market bottom.

The full moon is Sunday, tomorrow, a few minutes before lunch time EST, and stocks are typically bullish moving through the full moon. Thus, bulls have a small advantage for Monday. The following week, OpEx week, the week of 1/12/15, has bullish factors going for it such as Monday typically an up day, and a Tuesday low typically leads to a Wednesday high (1/13 to 1/14) and markets are typically bullish moving into a three-day holiday weekend (markets are closed on Monday, 1/19/15, for the Dr Martin Luther King, Jr, holiday).

The ECB meeting is 1/22/15, Greece elections 1/25/15 and the Fed 1/28/15 so the end of the month is full of drama and theatrics. Mixing the seasonality factors together, the markets would be up Monday perhaps into Tuesday, then down for the rest of the week, then up the whole week of 1/12/15, then down 1/20 (new moon) and 1/21, then flip a coin for the 1/22 through 1/28 circus.

Thus, the 1.22 on the CPC hints that a near-term bottom is at hand and reinforcing a Monday recovery rally, but lay caution to the wind since the bears just may do some more spanking for the back half of next week and catapult the CPC towards 1.50 showing an increase of panic and fear as stocks continue to drop. So the chart above says a near-term tradeable bottom for the long side is at hand, either a recovery for a few days or week or two for stocks from here forward, or, stocks recover on Monday maybe Tuesday, and then collapse Wednesday through Friday with CPC spiking higher, then the near-term bottom occurs Friday or starting the week of 1/12/15. The SPX minute and hourly SPX charts can provide further clues.

A third outcome is stocks collapsing Monday morning if a negative event occurs over the next day or so, this weekend, which would catapult the CPC higher towards 1.50 immediately on Monday and that will simply place the near-term bottom quicker as the panic and fear causes traders to do the wrong thing just like one week ago when everyone was buying stocks long as they drank the Fed wine and sipped the ECB champagne when they should have been selling. The CPC above 1.20 indicates that a near-term market bottom is on tap for next week. 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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