Tuesday, February 14, 2017
CPC Put/Call Ratio Daily Chart Signals Near-Term Market Top At Hand
The market drama continues. The market bears have been beaten-down for eight years ever since Fed Chairman Bernanke and President's Bush and Obama spit on free markets and capitalism in late 2008 and early 2009 deciding to intervene and save the banks and other companies such as GM and AIG. So when someone touts free markets in the United States you can obviously laugh at that statement since capitalism and free markets is only a quant concept that exists in economic books.
Eight years of Keynesian spending by the Federal Reserve, that now acts in collusion with other global central bankers has created the long stock market rally from 2009 to present. The central bankers are the market and have created new bubbles in all asset classes across the board. The stock market has hit the afterburners from November to present due to President Trump's election win. The new orange-headed showman-in-chief promises to lower taxes, reduce regulations and provide huge infrastructure spending. Traders expect these programs to reinflate the economy.
The near-parabolic gapping-up in stocks since last week is mainly due to the banks. The president, and his two Goldman Sachs henchmen, Mnuchin and Cohn, are slashing banking regulations watering down the Dodd-Frank rules and wanting to scrap bank stress tests. In addition, Fed's Tarullo, the watchdog over banking regulations, is jumping ship. The banksters have full reign on the financial system and will rape it for every penny possible over the coming months and years. The foxes are once again in charge of the hen house. Wall Street celebrates. Hence, banking stocks explode higher carrying the broad stock indexes higher and creating euphoric joy in the markets.
That euphoric optimism, complacency and lack of fear is verified by the low CPC put/call now down to 0.66. No one expects the stock market to ever pull back to any great extent ever again. Traders already proclaim that any minor pull back will be immediately bot since Trump is the new sugar daddy in town and Yellen's Fed will remain dovish. The low CPC put/call is signaling a near-term top is at hand for stocks.
These are not your grandfather's markets. In these central banker-controlled markets, technical relationships can become sketchy since the intervention is distorting pricing. In reality, no one knows what any asset class is truly worth anymore since markets have been distorted for eight years running.
The market bears receive the short end of the stick since the Fed, and now President Trump, can create stock market rallies and lift in equities by simply clicking their fingers. The last tradeable bottom for stocks was in early November when fear and panic was in the streets into the US election as evidenced by the high put/call ratios in the chart. Generally, you want to sell the market when the CPC is under the 0.8-ish level reflecting complacency and lack of fear and you want to buy the stock market when the CPC rises above 1.20 when the blood is in the streets with panic and fear.
The low prints in December, January and early February (red circles) only resulted in minor moves lower for stocks. The SPX was spanked for about 40 points over a 12-day period in December. The S&P 500 lost 30 points in four days in January after the low CPC and lost a paltry 15 points in three days this month. The bears cannot get any traction lower due to the central banker pumping and President Trump's promises. The central bankers maintain their jack boots on the throat of volatility, keeping the VIX down at 10 and 11, to guarantee buoyancy in the stock market.
The CPC has not ventured above 1.20 in over three months. If you are thinking of going long the market or bot stocks yesterday, you will regret it over the coming days. Stocks will peak again like the prior red circles. Sometimes the top may take a few days but interestingly, all three prior red circle tops occurred exactly on the low CPC print so the top may be in (near-term in the daily time frame) for stocks after yesterday's record highs.
The prior dumps were 40, 30 and 15 points so the average is 28 points. As mentioned, however, the CPC never reached 1.20 to create a proper tradeable bottom so the suggestion is that this selloff will likely be much more to the downside. Typically, the low CPC's should result in moves of 40 to over 120 SPX handles lower. With the SPX at 2328, the target for the spankdown would be the 2200 to 2300 level say over the next couple weeks as February ends and March begins. If you have big gains in stocks and are wondering if you should stay in or get out, sell all the long positions at today's opening bell. You will be glad you did when you look back a couple weeks from now. 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.