Monday, June 6, 2016

CPC and CPCE Put/Call Ratios and SPX S&P 500 Daily Charts Signal Near-Term Market Top At Hand

The last few days, over the last week or so, the low CPCE put/call ratio has been highlighted. The uber low put/call ratios verify trader complacency and lack of fear which creates a market top. Any recent pull back in stocks, however, is met with dip-buyers. Of course, Fed Chair Yellen flapping her dovish wings every couple days provides equity joy and maintains buoyancy in stocks. The buoyant oil prices have been very key to sending stocks higher and commodities are moving higher on the lower dollar. So keep an eye on the US dollar index and oil going forward.

A few days ago when the low CPCE put/call was highlighted it was mentioned that the CPC had not yet come down for an uber low reading. The thought was that the CPCE would create a near-term pull back that may or may not have legs. For a nice top to be placed you want to see both put/call ratios (CPCE and CPC) at uber lows to firmly verify the trader complacency. Today the CPC obliges and drops to 0.74 consistent to where other notable stock market tops occurred.

The low put/calls indicate a near-term top is at hand. The CPCE has not been above the green line to signal fear and panic for over one month.

The low VIX also verifies the lack of fear in markets. In fact, Aunt Edna that had just placed her entire life savings in utility stocks just like the nice man on television said to do and she convinced Nephew Jake to take all of his hard-earned money saved from his construction job and place it long the spiders (SPY) and dividend paying stock ETF's (DVY and SDY). Investors Intelligence survey remains very  bullish with few bears which also verifies the lack of fear in markets along with the CPC, CPCE and VIX.

The expectation is for a significant sell off to begin any time any day forward. It would not be surprising if the stock market flushed down hard and fast knocking everyone out of their socks. The bulls are euphoric and convinced new highs are around the corner while the bears have given up hope for any down move their short-covering creating much of the recent oomph in stocks.

The stock market will peak at any hour forward and sell off until the put/calls print in the green circles in the right margin. When the put/calls move above the green lines, that will be a sturdy tradeable bottom where it will be time to flip long again and exit the shorts. It is prudent to have shorts on right now against the indexes; traders are much too fearless, relaxed and complacent. It is time for the bulls to take a turn in the barrel. 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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