Monday, May 11, 2015

CPCE Put/Call Ratio Daily Chart

Lots of drama in the markets these days as the sideways choppy action continues all year long. The bulls create a dramatic rally last Friday after the jobs report sending the SPX 28 points higher. Average hourly wages are up a paltry +0.1% missing estimates and indicating that stagnant wages continue in the US. Inflation, that the Fed desperately wants to create with their obscene six-year Keynesian spending program, will never occur without wage inflation. Therefore, the week wage data along with the paltry 85K jobs created in March guarantees the Federal Reserve to delay raising rates; hence the huge Friday stock rally.

The complacency in markets remains. The VIX has a 12-handle and the CPCE drops to 0.55 matching prior recent lows. The CPCE typically identifies attractive market bottoms when sufficient fear and panic occurs above 0.80 and market tops occur when the ratio is in the 0.5's and lower. Similarly, market bottoms occur when the CPC is above 1.20 and market tops occur when the CPC is in the 0.7's and lower. The CPC put/call ratio drops to 0.86 on Friday.

The CPC ran above 1.20 helping to create a market bottom late last week but the CPCE only made it up to 0.74 in the chart above not showing a proper amount of fear. The last two market bottoms shown by the two green circles above are weak cheesy market bottoms (there is not enough fear and panic to create a strong market bottom). The two market bottoms in March and one in early April (green circles) started when fear and panic was elevated and the CPCE at 0.80.

The low CPCE and CPC put/call ratios verify the ongoing market complacency. No one expects markets to ever go down since the global central bankers will always maintain a bull party with easy money. Traders are not buying any downside protection and have no fear or worry since central banker money-printing will continue forever. Party on, Garth. Another market top is expected in the coming days since the CPCE is coming back down into the red circle in the right margin. Watch the CPC as well to see if it moves from 0.86 down to the 0.7's which would  verify the pending market top. The low CPCE tells you to trim long positions if stocks continue higher and do not get caught up in any upside hype. A short play against the broad indexes should develop this week. Keep an eye on the CPCE and CPC ratio's. 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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