CPC Put/Call Ratio Daily Chart Moves Toward Panic and Fear

The CPC crossed an important threshold yesterday, the 1.20 and higher level that signals panic and fear entering the markets.  Taking a step back, Keystone described the soap opera the last three months as markets topped out due to complacency and fearlessness shown by a CPC under 0.8.  The wine was flowing like water, there was no wall of worry on Wall Street, the CPC shows that everyone was on the long side, partying like it was 1999.  That is how a top occurs.  The next move is to wait for prints above 1.20 since that shows a return to fear, worry and angst in markets. However, the TRIN was 2-ish, elevated but not excessively so, and VIX, volatility was playing around 19, again not overly bearish readings as would be expected considering the dramatic sell off.  Therefore, the guess is that the CPC will likely print above 1.21.

The 25 and 39 MA cross provides a guideline.  Note how the cross occurs in June to confirm that the broad market rally is the real deal.  Remember, this chart moves inverse to the broad indexes. As CPC moves lower, traders are becoming more and more complacent, and markets are moving ever higher, traders start to believe the party will never end. As the CPC moves higher (like now), that shows that traders are becoming worried again and are starting to buy protection thru simple puts, or by shorting stocks or indexes, or a myriad of other strategies to brace for the downside.  Over 1.20 the fear is getting out of hand, traders start to jump out windows, hopefully only first floor windows, since margin calls are heavy and stocks plummet as CPC 1.3, 1.4 and higher is printed. This behavior will identify a bottom in the broad indexes, likely somewhere between SPX 1335 and 1385. The moving average cross occurs a couple weeks ago so the up move for the CPC is likely in early stages. The move higher for the CPC will be shorter duration than the bull move from June to October, but the markets may be in for a month of choppy downward action into December.

Once the CPC moves up and over 1.20 and higher, it is time to start nibbling on some long plays. You should have your shopping list ready for the long side so establishing a starter position or two is usually wise.  Then as the CPC prints higher and more market downside occurs and more fear develops, the long positions can be added to, in stages, scaling in, then when the CPC maxes out and reverses, placing a market bottom, the long positions should work out moving forward. 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.