CPC Put/Call Ratio Daily Chart Signals Significant Market Top Large Sell-Off On Tap

Will the question about complacency in the markets finally be put to rest? Clearly, traders have received the message loud and clear from the Fed and BOJ and they took Grandma Edna's and Aunt Nellie's entire life savings and placed it in the stock market over the last few days.  The central bankers have told everyone that the equity markets will go up forever and there is no need to worry. May the Lord have mercy on their souls. The low CPC shows that it is about to end badly.  Markets are not climbing a wall of worry, as the chart clearly shows, instead, the markets are climbing a wall of stimulus. A CPC under 0.7 indicates uber complacency, a complete lack of fear in the markets, zero worry.  The central banker policies have created this mess. Very few traders are holding any shorts, in fact many die-hard short sellers threw in the towel today, completely giving up, throwing their arms up in disgust and swearing that they will never short the market ever again. Interestingly, this now increases the chances of a very strong move south, once it begins, since there will be very little short-covering, the markets may cascade lower taking out stops one after another.

Well, all that said, how much of a pull back, and when, and how long will the selling event occur? Let's look at the prior low CPC's to answer those questions. The when is easy, any day now, maybe tomorrow, this week, but anytime over the coming days. Looking back at the prior sub 0.7 CPC prints, June 2011 was a 90-handle sell off in the SPX over two weeks time. The low reading in late July 2011 identified the exact top for the August waterfall crash with markets dropping 250 handles in two weeks time. The January 2012 sell off was weak due to the announcement of money pumping by the ECB with the LTRO 1 and 2 programs. This sell off dropped the SPX only 20 handles in a couple days time.  The March 2012 top results in a 150-handle drop over two months time. Note that the paltry drop in January 2012 led to the larger drop a couple months later.  The September 2012 top took 130 handles off the SPX over two months.  The November 2012 top was a quickie dropping the SPX 25 handles in a couple days time.  And the red circle on the right hand side, now, at 0.67 will result in?  The sell offs are 90, 250, 20, 150, 130 and 25 points. So the range is from 20 to 250 handles of downside ahead with an average drop of 111 points. The duration's are 2 wks, 2 wks, 2 days, 2 mths, 2 mths and 2 days.  So the range is from 2 days to 2 months of selling with an average selling event taking 17 days, about 3 weeks time.  Thus, wrapping this exercise up with a pretty bow, the selling event projection, which will begin at anytime, based on averages for the major tops over the last two years, is a sell off of 100 handles or more over a three-week period.

Keystone posts the CPC chart often but for those of you new to the site, as the worldwide readership continues to grow larger day after day, readings in the 0.7's and lower signal uber complacency and complete lack of fear or worry. This behavior identifies significant market tops.  When the markets sell off in force and tumble lower, traders start to panic and worry, fear runs rampant, and traders start selling everything in sight, throwing stocks overboard, and some folks jump from windows, hopefully only from first-floor windows. As Warren Buffett laments, 'be fearful when others are greedy (now) and be greedy when others are fearful (CPC 1.20+)'. When the CPC prints above 1.20 you want to start covering shorts and scaling into long positions (you should have a long shopping list ready since the markets will be moving very fast). Markets are not attractive from the long side until the fear and panic appears.  The green circles clearly identify all the major market bottoms over the last two years across the top of the chart.   

Sure, this post this evening is dramatic; but it needs to be.  If you are long you best have lots of downside protection in place, if not, hope for a market pop tomorrow and do not waste any time placing shorts, buying puts, and/or buying long volatility, and/or placing other methods in motion that will benefit from a large market sell off. Tonight is the evening before the battle at Gettysburg, a lonely harmonica solo echoes through the valley, as the tension mounts. Something big to the downside is about to happen. Be very afraid. You may have a day or few, but a major selling event is at the doorstep. To add even more drama and excitement, Keystone's Eclipse Indicator, posted last evening (type 'eclipse' into the search box to bring up that article or simply scroll backwards one page), is currently in a window where markets have potential for a large sell off. Folks will likely be very surprised at the drop coming, especially the quickness of the potential drop. Pleasant dreams. 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.