Friday, May 1, 2015

CPC Put/Call Ratio Daily Chart

The low CPC put/call ratios (red circle) call the top in stocks as expected. It was tricky since there is a triple-low print with the CPC that does not typically occur. The first low number in mid-April was the first warning sign that markets are topping out due to excessive complacency. Shorts can be scaled into to anticipate the coming move lower in stocks, which occurs. The bulls throw a curve ball and end up creating choppy trading and sending the SPX above 2100 and even above 2120 for a new all-time record high while printing two more low CPC prints. However, if scaling in as SPX price ran higher, the trade works out fine and the SPX is now below the 2100-ish level from when the first CPC low print occurred. The buoyancy in the stock market is credited to how firmly the vast majority of traders believe in central banker easy money and how the stock market can remain elevated a long time as bankers keep printing money.

The CPC under 0.80, in the 0.7's and lower, signals complacency and a stock market top while the 1.20 and higher level indicates fear and panic entering markets where a market bottom will typically occur. The CPC is up to 1.05 not yet above 1.20 so the market selling should continue a while longer. S&P futures are up strongly +9 as this is typed Friday morning but since the CPC did not spike higher any bounce in stocks is likely going to give way to more weakness next week. Can a rally begin from here? Sure it can and traders may become more complacent again and send the CPC back down to the lows but that only signals that a market top is again at hand. Markets need to continue selling off until traders throw up their arms and profess that the end of the world is near (CPC above1.20) which will actually create a bottom and bounce stocks.

If you want to bring on longs it is prudent to probably wait until the CPC moves above 1.20 and the CPCE moves above 0.80. A full moon occurs late Sunday evening EST time and stocks are typically buoyant moving through the full moon. So perhaps the bulls stage a comeback rally into early next week, and it may be fueled by a Greece deal on Sunday, but again, the CPC needs to show fear so a proper near-term bottom will only take place when the CPC moves above 1.20. 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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