Saturday, March 14, 2015

CPC and CPCE Put/Call Ratios Daily Charts Signaling Near-Term Bottom

A few days ago Keystone highlighted the high print in the CPC put/call ratio which typically identifies a near-term bottom, however, the CPCE remained benign not moving higher. For the CPC, a move above 1.20 shows fear and panic entering markets and that is when a market bottom occurs; ditto the CPCE above 0.80. When the CPC drops under 0.80 complacency is rampant in markets identifying a near-term top; ditto a CPCE under 0.55.

Thus, with the CPC above 1.20 and CPCE above 0.80, a near-term bottom in the stock market is very likely leading to a rally next week. If thinking of playing the long side in a quickie trade, it would be ideal if markets were weak on Monday since any further weakness can be bot on the long side. Even without any further drop in stocks the expectation would be for a recovery rally since traders are becoming worried. Once the boat is fully loaded with worriers and people becoming fearful, bingo, stocks recover. The fear and panic was rampant for the mid-October bottom. Keystone highlighted the low prints in late February (market complacency) calling for a near-term market top, which occurred. So if you are a very short term swing trader you can cover the short side that you enjoyed over the last two weeks and flip that trade to the long side.

Of course the Fed will be in play in the week ahead with Fed Chair Yellen bringing the tablets down from on high on Wednesday afternoon to instruct everyone on how to trade so that is a wild card. Next week is OpEx week and in March that week is typically up about 80% of the time which reinforces the long side matching the CPC and CPCE prognostications. During OpEx week, a Tuesday low typically leads to a Wednesday high--more bullishness. Late in the week, early Friday morning at 5:36 AM EST, a new moon peaks for the month and markets are typically bearish moving through the new moon providing a sliver of hope for bears as the week draws to a close. Thus, the bulls may run higher through Thursday and if there is a high print then that would be a good candidate to short and weakness would be expected into the weekend but overall the week would be expected to finish higher.

This pattern is interesting since markets are constantly goosed higher with central banker easy money. Yellen is expected to remove the "patient" phrase from the Fed statement which means the first rate hike is on tap in a couple meetings which is the June-July time frame. The Fed is in a quandary, however, basically committing to the word change but knowing that the economy is weaker than anyone realizes and inflation is nowhere in sight; deflation and disinflation remains the order of the day in the US as last week's economic data verifies.

After six years of obscene Fed intervention with ZIRP and QE, the end game may be very near; and not the happy ending expected. The central bank intervention is a confidence game. As long as traders and investors believe in the Keynesian money-printing it will goose stocks higher; simply look at the upside orgy occurring in Europe now after ECB President Draghi is firing the QE money bazooka. When confidence is lost, all is lost.

If Yellen does not remove "patient," then stocks may launch with a rally since the easy money fun continues, but at the same time, since the removal of patient is expected, after a few hours or a day or so, traders may come to realize the Fed is clueless and making it up as they go along; confidence will be lost. If the Fed removes "patient," Yellen may change the rules again and say the two-meeting expectation for a rate hike may or may not occur. This would cause a loss of confidence since the Fed will be back pedaling from their own guidance. If the Fed removes "patient" and is on track for the June-July rate hike, confidence may be lost since the economy is simply in no shape to receive the rate hike.

Keep in mind that all the people touting a great economy are those that own stocks and see their quarterly statements rising for the last few years as they become wealthier due to the easy money and in their minds the economy is doing great. These are the folks buying iPhones and enjoying the American dream. The other one-half of the United States, that do not own stocks, are suffering daily through continuing high debt and lack of employment. All the commentators in the media and television are all part of the upper class that have benefited so in their minds all is well with the economy; none of these folks understand how ill the economy remains since they only see the US through the cloudy prism of their own joyful circumstances.

Thus, the put/calls and OpEx factors point to a mini upside rally early into mid week as Yellen takes the stage, however, perhaps after six long years of obscene Keynesianism, the end game is at hand and confidence will be lost in the money printing scheme that will eventually hurt America and likely send the country into years of social unrest. 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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