CPCE Put/Call Ratio and SPX S&P 500 Daily Charts

The stock market is a circus these days. The never-ending dovishness by central bankers, as well as the now-constant happy talk over a US-China trade deal, maintain an elevated stock market. A trade deal is expected by mid-November so both President Xi and President Trump can gain political capital. The proof will be in the pudding. King Donny has said that he wants a big deal and one that addresses IP theft and is fully enforceable if violated. A weak half-measure deal will not satisfy markets.

The CPCE put/call ratio behavior is unprecedented going from a panic mood to euphoria and then back to panic now nearly back to fearlessness again all this in only 3 weeks!! As the geopolitical news bites hit the tape, the stock market is thrown to and fro but mostly up, as seen by the rally in the S&P 500 off the 10/8/19 low. The high put/calls called the bottoms in the SPX on 10/2/19 and 10/7-8/19.

The low put/calls mid-month identify that a top was on the come but it turns out to be milktoast with only tiny pullbacks from the recent peaks. The CPCE then jumps to nearly 1.0 signaling panic and fear. This typically occurs with stocks falling sharply since this breeds the fear and panic in human minds. The fear and panic, however, occurs with the stock market rallying to within a heartbeat of all-time record highs. This is very odd behavior.

The elevated put/call ratio and elevated stock market tell you that investors are not willing to sell their stocks. Traders are holding on to longs expecting the upside party to continue. No doubt this is a continued belief in the power of central bankers. The BOJ promises more easy money in an announcement this week. The PBOC is stimulating the communist economy out the wazoo. The Fed remains dovish and the business news channels are playing ECB President Draghi's "whatever it takes" statement from 2012 over and over again

Draghi's last meeting is Thursday morning and Christine Lagarde, who headed the IMF, will now take over as president of the European Central Bank. Her first meeting and presser may be 12/12/19. Will she flap dovish wings? Traders and investors say yes and celebrate the power of the central bankers by buying stocks.

It is interesting times. The bread and circus days. The tail end of a Kondratieff Cycle. The CPCE and CPC daily charts help to identify complacency versus fear in the near-term. The willingness for investors to hold on to stocks no matter what indicates an underlying and deep-seated long-term bullish sentiment exactly what would be expected at major stock market tops. Traders are concerned over the near-term, hence, they buy put protection, but none are selling their stock holdings. Just think, when markets roll over lower, what are these folks going to then do all at once? That exit door is looking mighty tiny.

By buying put protection, any market weakness is viewed by investors as a short-term event. Traders expect stocks to continue higher over the longer-term due to the Federal Reserve and other central bank's never-ending money-printing. Also, investors are sniffing out a US-China trade deal because Donny needs a win for his re-election campaign. It is all viewed as blue skies and rainbows ahead. All this is occurring with a backdrop of monthly charts that are rolling over many peaking out with rising wedges and negative divergence across all chart indicators. It is going to be epic when she gives way anytime forward.

A major stock pullback would likely occur if the US-China trade deal is viewed as a cobbled-together piece of excrement. Traders will be disappointed if Donny does not deliver on his braggadocio. Over 2 years ago, the orange-headed leader said, "Trade deals are easy." We will find out in a few days and weeks if this is true; after 2 years it already appears untrue. Xi is dictator for life while Donny may be a footnote in history in one year's time.

At the same time the trade deal drama continues, confidence may be lost in the central bankers; this is when the true end game occurs in the stock market and equities will be in limbo for several years afterward. When hope, belief and faith is lost in the Fed and other global central bankers, all is lost. For now, traders and investors continue kneeling at the Fed altar each day.

Add on the Brexit drama, Hong Kong protests and populism rising around the world. The huddled masses everywhere are realizing the wealthy elite class has screwed everyone and now it is payback time. Socialism is on the rise since capitalism only existed as crony capitalism. Chile is in chaos causing the copper prices to run higher. Europe will likely be in recession in a few months; Germany, the economic engine across the pond, already is.

Housing Starts are rolling over in the States for the last three months. Manufacturing data is weak. The Fed and other central bankers have stopped a recession from occurring for a decade; can party host Powell keep the festivities going by spiking the market punch bowl with happy juice for another few years?

Back to the near-term, the CPCE drops yesterday to 0.64 a low reading but not yet at the complacency level. The expectation is for another top to form in this daily time frame over the next few days. The stock market is simply reacting to the news flow currently--good or bad. Happy US-China trade talk continues but the result of all this hype will likely not be known until the second week of November so say 3 or 4 weeks from now. So the trade stuff may be in a holding pattern. Will investors wait around for a month to find out what King Donny and Dictator Xi agree to?

The two-day FOMC meeting begins next Tuesday with the rate decision on Wednesday the day before Halloween. Will it be a trick or treat? Stocks are up 80% of the time the day or so in front of a Fed meeting so the bulls have the wind at their backs, say, on Monday afternoon, Tuesday, into the hump day decision. The nearness of the Fed meeting is likely contributing to buoyancy in equities--traders may be willing to wait a few days to see what Emperor Powell says when he brings the tablets down from on high and tells global investors how to trade next Wednesday. So if the bears want to growl, they need to get busy this week since by Monday and Tuesday stocks will likely want to start floating higher into the Fed party.

The FOMC meeting next week may be the pivotal turning point for a market top. That would give the CPCE 4 or 5 more trading days to set up the top with a low reading signaling complacency. 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 Saturday Morning, 10/26/19:  The CPC is at 0.82, a low reading, and the CPCE drops to 0.56. Complacency is rampant. Traders are euphoric. The new moon peaks for the month tonight and stocks are typically bearish through the new moon. The Fed decision is on Wednesday and stocks are usually buoyant into the Fed meetings. The put/calls are setting up for a stock market top.