CPC Put/Call Ratio and SPX S&P 500 Daily Charts; Near-Term Market Bottom Approaching

Happy Labor Day to everyone around the world that is laboring but in the United States we are grilling hamburgers and hotdogs, waving flags, setting off fireworks and singing patriotic songs. Most of all, folks are happy they have a day off work.

Yesterday was 9/1/19, 9119, a palindrome. Sometimes interesting things happen in concert with palindrome numbers. September 10th, the Tuesday a week from now, 9/10/19, is a palindrome on tap, 91019, the day before 9-11.

The Hong Kong protests, in their 13th week, are becoming more violent. Over 2,000 rounds of tear gas, water cannons, live-round warning shots and over 500 rubber bullets are used by the communist forces to beat down the patriot protesters. Over 1,120 people are arrested and thrown in jail. The commie leaders are now spraying blue dye on protesters so they can be tracked down like animals, rats, and thrown in jail. That's the way a communist society handles unrest. Aren't humans wonderful?

The demonstrators are not stupid. They know the Beijing communist leadership wants calm, peace, unity and happiness for the 70-year celebration of communism, the founding of the People's Republic of China, coming up in 4 weeks on October 1 and humorously, albeit sadly, will put a bullet in anyone's head that goes against that plan (like a Dad on a stressful vacation, with a red face and animated expression, yelling at all his bored children that they will have a good time whether they like it or not!).

Seeing the red communist China flag burning in the streets must have the commie leadership livid. The Beijing leaders do not want the Hong Kong social unrest to butt up against the celebration since it will still taint the festivities even if it is snuffed out. Beijing knows they must crush the protesters, like they crushed the Umbrella Movement in 2014, within the next two weeks since that will provide two weeks of calm into the commie celebration and festivities. The next two weeks may write a bloody page of history for Hong Kong. China will be extremely unhappy if the commie celebration is tainted. It is a huge deal for President Xi, at the upcoming celebrations, to puff out his chest proclaiming he is the Second Coming and plans to rule the communist nation for the remainder of his days.

Placing Hong Kong aside, President Trump likely has the last good window to pressure Xi into a trade deal since the upcoming celebration can be used as leverage. Trump's true colors will show in September. He will either pressure the Chinese hard with tariffs and tough trade negotiations forcing Xi's hand into the commie celebration to make him buckle, or, the president may balk, and play nice with China cutting them more breaks and time to come to the table. The latter is likely a losing scenario for the US president going forward. China's goal is to drag out the trade negotiations for a year since if Trump is defeated in November 2020, all their trade and tariff problems will evaporate. The US president has some serious leverage he can use against Xi in the coming 3 or 4 weeks if he chooses to use it.

All that windbag geopolitical talk aside, let's look at the charts. The CPC put/call ratio in panic and fear territory above 1.20 so a near-term bottom is anticipated to occur in the days ahead. The CPCE put/call, however, is not quite as high as it should be to confirm the CPC. The red circles show market tops occurring as the greed, complacency, lack of fear and euphoria sink the bull's ship. The green circles show the market bottoms occurring as the panic, fear and worry is too much to handle and many traders say they can no longer buy stocks.

The current markets are strange. Over one-decade of obscene Federal Reserve and other global central banker Keynesian money-printing has destroyed all price discovery in assets as well as the expected business cycles. These chickens will come back home to roost going forward. The CPC has been throwing off bottom and buy calls during August but the recoveries only result in short rallies and rollovers, and then another top. Traders and investors are buying puts to protect their long positions fully believing that the Fed and other central banks will always save the day and send equities higher (they are seeking protection but not selling their longs). Such is the corrupt crony capitalism financial system. In addition, traders are anxious to buy the dips when they smell a whiff of panic in the air afraid they will miss out on a big upside rally. So the sideways chop continues.

The CPC 21-day MA is very useful for calling stock market tops and bottoms. The red boxes show the low points in the 21-day when market tops occur and the green boxes show the peaks in the 21-day corresponding to market bottoms. Note how the topping process typically takes a few days or week or two to form while the bottoming process is more abrupt resulting in V bottom stock market moves. The green box at the right margin for the 21-day indicates that a tradeable stock market bottom is very near probably within the week (any day ahead).

The problem is that it appears many traders are looking for this bottom and anxious to keep buying dips which results in this choppy whipsaw mess for the last month. The SPX is using the 50-day MA at 2945 as topside resistance and the 150-day MA at 2870 as downside support. Obviously, bulls win big above 2945 while bears will growl below 2870. In between SPX 2870-2945 is ongoing noise.

The 150-day MA started sloping higher in June and continues higher (green arrow) signaling a cyclical bull market pattern ongoing. Bears will need to roll the 150-day MA over to the downside to celebrate and usher in a cyclical bear market pattern.

Well, what does all this mumbo-jumbo mean? Keystone will be watching the CPCE now at 0.68 and would like to see it above 0.75 to verify excessive fear and panic and reduce risk at calling the near-term market bottom. An ideal scenario will be if stocks take a sharp drop over the next couple days since that would send the put/calls higher and create the opportunity to go long the indexes on a short-term play. If stocks rally on Tuesday, it is probably best to keep watching instead of trading. In whipsaw markets you should already be doing less trading and more watching. Remember, trading is like a bar of soap, the more you handle it (your capital), especially in whipsaw markets, the smaller it becomes. The choppy markets are chewing up bulls and bears alike.

So get ready for a near-term bottom perhaps any day this week. The month of trading for September begins tomorrow and new money typically comes into equities the first few days creating buoyancy in the indexes. The back half of last week was bullish as expected due to seasonality (the two days prior to a three-day holiday weekend are usually bullish). The new moon peaked on Friday morning creating some market angst in the afternoon and on the weekend. S&P futures were down -25 handles last evening but are now -7 on Monday morning US East Coast time. A lot can happen, either way, into tomorrow.

Keep an eye on that CPCE to see if it spikes higher, if so, it will be time to buy the stock market preferably intraday when the TICK machine prints a -1000 to -1200 number (excessive panic). Of course political soundbites will continue sending equities to and fro. 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.

Note Added at 12 Noon EST Monday, 9/2/19: Right on cue, Bloomberg reports trouble with the US and China trade negotiating teams. They cannot agree on when to meet this month or on the agenda or format. Of course communist Xi likely wants to push the meeting into mid to late October, about 6 weeks from now, after the communist celebrations. The US is pushing for meetings this month perhaps for President Trump to put the screws to Xi who will not want to see his communist celebration soiled. The drama continues. On the news of the two sides unable to agree on something as simple as when to meet, S&P futures drop -28 points, down -15.

Note Added at 6:00 PM EST Monday Evening, 9/2/19: The ongoing trade drama creates market negativity. S&P futures -23, -0.8%.

Note Added at 8:30 PM EST Monday Evening, 9/2/19: S&P futures -16, -0.6%.