CPC and CPCE Put/Call Ratios and SPX S&P 500 Daily Charts; Relief Rally is Near

Panic and fear return to markets during the selloff. As explained at the end of July, the put/call ratios were uber low signaling complacency and complete lack of fear. Traders were throwing darts at the stock pages to pick longs since everything goes up everyday forever. The Fed and other central banks plan on printing money forever so there is no need to ever worry about stocks going down again. When the joy is rampant, it is time to smack everyone in the face and bring them back down to earth. Stocks top out on the euphoric sentiment and retreat as expected.

The bloodbath over the last couple weeks receives everyone's attention and the bulls are no longer singing songs. Instead, the bulls are drowning their sorrows with booze. During the drop in stocks, Timmy Trader, a novice to such sharp retreats, could not take the pressure. Timmy flipped his wig, running across the trading room and jumping out of the window. Fortunately, he was on the ground floor. The blood is running in the streets the last few days. The baby was thrown out with the bathwater. You know all the ole Wall Street adages after a selloff.

Alas, just as night follows day and day, night, the pendulum swings back the other way. Investors are screaming bloody murder unwilling to buy stocks at any price. Traders seek protection driving the put/call ratios higher and reflecting the underlying fear in the market. Of course in trading, you want to buy when everyone is panicking and you want to sell when everyone is complacent and euphoric.

The green circles show stock market bottoms occurring at times of excessive worry and fear while the red circles show market tops when traders were complacent without worry. What do you think will happen?

The green circles at the right margin are purposely drawn large since people can always work themselves into a larger fear and panic resulting in more downside. After the Fall 2018 crash, note how the fear and panic was rampant during the third week of December. Stocks bottomed a few days later on Christmas Eve. The stock market was starting to collapse on 1/3/19 but that is when the Fed, colluding with the ECB, BOJ and other global central bankers, stepped in to save the world's stock markets. The early June stock market low is interesting. The fear an panic peaked about 2 or 3 days before the stock market bottomed; we are noiw in a similar type of window.

The CPC and CPCE put/calls are at high readings, the NYMO is at a low reading, the NYAD shows a washout in negativity, the TICK machine prints an uber -1200 low yesterday, the SPX 2-hour chart prints universal possie d and the overnight yuan fixing is not as weak as expected (although the PBOC has now crossed the Rubicon by setting the yuan midpoint above 7.00 (weaker yuan) for the first time since April 2008). All these parameters are bullish for VST (very short term) tactical traders and the intraday lows yesterday provided a great entry opportunity.

The rally will only have legs if the VIX drops below the 200-day MA at 17.19. If stocks continue to float higher but the VIX is unable to move lower, equities will roll back over to the downside and fall apart. Of course, there is also the unknown tweets from President Trump that may occur at anytime, good or bad. Central bankers rule the roost. 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.