Sunday, April 24, 2016
CPC and CPCE Put/Call Ratios Daily Charts
The last chart of the CPC put/call shows the market top occurring due to the uber complacency, however, the SPX only retreats a paltry amount of points late last week, at least so far. After the last uber low CPC last Wednesday, the CPC spikes higher to 1.17 and the CPCE spikes higher to 0.85. The high numbers are in the area where a VST market bounce may occur, and this helped create the Friday recovery in stocks, but as seen by the charts, the stock market has not placed a proper sturdy bottom since February. Several uber low complacency readings occur in March and April but any start of a stock market pulll back has been snuffed out by central banker dovishness.
The 3/10/16-ish date jives exactly when ECB President Draghi fired his money bazooka. That was followed by Fed Chair Yellen's dovish rhetoric which created another boost in stocks, then the Easter bullish positivity played out, then Yellen jawboned more dovishness. This takes markets into the high last Wednesday-Thursday with Draghi once again at bat and he stands pat with the current stimulus plan (which is plenty of juice although the market weakness began after Draghi' s decision). The FOMC decision is this coming Wednesday.
It is shameful how the central bankers have pumped the stock market higher for seven years. They have destroyed price discovery as well as the concept of free markets. At this point, there has to be from 20% to 80% of fluff under the stock market after seven years of obscene Keynesianism. That will be an interesting sight when it all unravels at some point in the coming months.
The spikes to 0.85 for the CPCE and 1.17 for the CPC help create the bounce in the stock market last Friday as traders quickly became worried buying puts for protection so the tinge of fear creates quickie bottom action in the hourly time frame. The put/calls then drop on Friday's print.
The CPCE put/call ratio drops to the lowest level in over one month so traders are the most complacent and fearless in the last five weeks. The stock market is not an attractive buy until the bullish euphoria is washed away with tears of panic and sadness. To place a firm reliable stock market bottom, you want the CPC above 1.20 and the CPCE above 0.90.
The choppy action will likely continue. A pull back in stocks is long overdue. The complacency has not been rung out of the stock market as the charts show so the only way to do it is with panic and fear. The idea would be to exit long trades now and not consider the long side until the put/calls print above the green lines. The rising wedge is an ominous pattern for the SPX. The collapses from rising wedges can be quite dramatic. The Fed decision on Wednesday afternoon will be a key inflection point. 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.