Thursday, April 14, 2016

CPC Put/Call Ratio and SPX S&P 500 Daily Charts Signal Near-Term Market Top

Trader complacency is rampant with the low CPC yesterday at 0.62. And why wouldn't traders be complacent? The Fed wine is flowing like water. Bulls have benefited from the ECB pump in March, then the Fed pump, then the positive seasonality with the Easter holiday, and then another Fed pump. The central bankers are the market. The bears have been ripped off over the last three weeks due in large part to the power of the central bankers.

The CPC moves steadily lower for the last three months indicating more and more complacency occurring as stocks move higher and higher off the 2/11/16 low. The CPC put/call was highlighted in mid-March, which did result in a pull back in stocks but if you blinked you missed it. The SPX lost only 20 points and recovered as Draghi and Yellen continue to promise to drop money from helicopters forever. For that low mid-March print at 0.68 for the CPC the pull back in the SPX would have been expected to be about 30 to 100 handles and only a paltry 20 occurred.

Fear and panic sets in when the CPC is above 1.20 and this is where market bottoms occur since everyone is far too negative. You always buy when there is blood in the streets and the CPC above 1.20 tells you that the blood is flowing with carnage everywhere. The market bears have been jipped for three weeks. Note the CPC moved higher to 1.15 but did not even get above the 1.20 threshold to place a proper market bottom. Nonetheless, stocks catapult higher riding the white wings of the Yellen dove, a new species of bird that can print money.

So stocks move choppy sideways with an upward bias and the SPX prints at 2083 for the last couple days. Okay, now what Einstein? Stocks should place a top at anytime, any hour, any day forward due to the uber complacency verified by the low CPC; the top may be in now. The SPX should drop from 30 to 100 handles over the coming days or week or three once the selloff begins. Since the bears were jipped over the last three weeks, they may fight back with a vengeance. The standard expectation would be that stocks will sell off until the CPC moves above 1.20. At that time, it is time to scale out of shorts and start moving into longs.

It will be interesting to see if the bears can now bite off their pound of flesh in the near-term. The CPCE put/call ratio is at 0.68 not quite as low as would be expected to reinforce the CPC's low number above. However, the CPCE is in a very uncharacteristic tight sideways chop and has not moved higher to properly identify a firm market bottom in the last three weeks (just like the CPC) so it is very open to stocks selling off in the near-term until fear and panic is created. 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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