Monday, August 27, 2018
CPC and CPCE Put/Call Ratios Daily Chart; Near-Term Top At Hand
Here is an update of the previous CPC and CPCE put/call charts from last week. The low numbers last week indicate complacency in the stock market and a pull back is expected of 40 to 80 SPX handles and perhaps much more. The question is where it would top out in the days forward. The SPX peaked a day later at 2874-ish and then pulled back a couple days to a low at 2855 and then zoomed higher. That 15 or 20 SPX handle pullback was nothing. If you blinked you missed it.
The central bankers, always the positive wild card in the stock market, came out firing both barrels. The Fed pumped stocks higher on Friday from Chairman Powell's dovish speech at Jackson Hole. Powell's dovishness is verified by the Fed Funds futures only indicating a 60% chance of a December rate hike. The September hike, on 9/26/18, is considered a done-deal. Typically, you want to see the rate hike chance over 80%, the higher the better, for it to be cast in stone. The December hike is up in the air verifying the Powell dovishness. Hence, stocks rocket higher. Central banker easy money rules the stock market since March 2009. It has gone on so long that no one pays attention to it anymore.
Then, the PBOC, China's central bank, announces counter-cyclical measures to control the yuan. This is a fancy phrase that simply means the PBOC will intervene if the yuan becomes too weak (the dollar/yuan moving towards 7), and if the yuan becomes too strong (the dollar/yuan pair moving towards 6.2-6.3). The idea is to create stability and the news creates more stock market upside. Asia stock indexes rally on the PBOC intervention. The double-whammy central banker games create global stock market joy since Friday. The central bankers are the market.
The stock market rally continues through today and the upside euphoria is verified by new lower-lows in both the CPC and CPCE put/calls. Traders are buying stocks at the ask with both fists. Bulls are throwing confetti, dancing and singing with lamp shades on their heads as the drink Fed and PBOC wine buying stocks with reckless abandon.
The bullish pundits are out in force parading across the business television screens telling investors to, "Buy, buy, buy!" Such is complacency and lack of fear in markets exactly when a pull back occurs. Barring more central banker largess, the 40 to 80 SPX handles of downside are on the table and once again it is a matter of from what level. The near-term top can occur at anytime, any day forward. The SPX prints a new all-time closing high today at 2896.74 and a new all-time high at 2898.25. A drop down to the 2800 to 2830 is a realistic downside target for the days ahead as soon as the top prints at any time, probably this week.
The up move in equities has momentum. The MACD line on the SPX 2-hour chart continues sloping higher but the RSI and stoch's are both overbot and negatively diverging. Stocks may top out and begin the downside tomorrow afternoon; it depends on how the charts set-up. The news bites on trade and the central banker intervention are in the mix as well. 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.