CPCE Put/Call Ratio and SPX S&P 500 Daily Charts; Significant Near-Term Top At Hand

The wine is flowing like water on Wall Street. Virus, schmirus. No one is concerned about covid since they are too busy buying stocks. As is the case for the last 11 years, the stock market explodes to the stratosphere when the Federal Reserve and other global central bankers announce more Keynesian money-printing. What a sick financial system.

The green lines and circles show important near-term bottoms created by panic and fear. The put/calls are a contrarian indicator. When traders are panicking and performing indiscriminate selling, throwing out the baby with the bathwater, giving up all hope and wringing hands as a feeling of dread and doom descend over markets, this of course is the time to buy. When everyone is running from the burning building, that is when you are walking towards the flames picking up goodies here and there that are laying around.

The red lines show the important recent near-term tops created by complacency and lack of fear. Emotion is a powerful force that greatly impacts trading. This is why robots are better at trading; they only see 1's and 0's. The February top was identified by the complacency and party atmosphere in markets. Traders were drunk as skunks on Fed wine, ECB champagne and BOJ sake. The PBOC provided some rice wine which caused Fat Frank, that hangs out at the Apple counter, to buy two extra blocks of AAPL shares.

Aunt Nancy is twirling and dancing over a patch of dandelions between her house trailer and the double-wide next door. Nancy took her entire life savings and bot AMZN stock and tells the whole trailer park that she will be swimming in money by Labor Day. It is easy to see the complacency nowadays with everybody and his bro saying the bottom is in for stocks and the recovery will continue. Of course, when the party is in full swing, the band is rockin' and rollin', the ladies are dancing joyously displaying their wares, and traders are buying stocks with reckless abandon, that is the time to go short. What do you think is going to happen?

Sometimes the tops occur right away, sometimes it takes a day or few for the top to appear on the SPX daily chart. Watch the SPX 2-hour chart to see when the universal negative divergence occurs which will firmly identify the top. The SPX daily chart is in neggie d over the last couple weeks and agreeable should price start to collapse. The 2-hour is negatively diverging although the money flow has a bit of juice. That may need a jog move in price, down-up, to place the top. So an expectation would be for the top to occur at anytime forward.

The Investors Intelligence Survey paints a rosy picture. Usually the contrarian tools agree but not this time. The survey shows excessive bearishness and very few bulls a serious divergence. With such uber bearishness, one would expect the stock market rally to continue, however, the put/calls are a far more reliable and valuable tool. Always follow the money, the put/calls, since talk is cheap. The survey likely does reflect the bearishness in markets but at the same time traders know the central banker money-printing will goose stocks in the short term so why not make some easy quick money off the March bottom? Use the CPC and CPCE as your contrarian sentiment indicators. The VIX, the so-called fear gauge is also useful, however, the VIX is far better at calling market bottoms (when the VIX spikes wildly high) than tops (when the VIX is low).

OpEx is this week so that means a Tuesday low typically leads to a Wednesday high so hump day may provide a nice opportunity for shorting. Friday is a big economic data day; inflation data is on tap Tuesday and Wednesday.

So what are you going to do now that you know what is going to happen in the days ahead? Investors are happy as pigs in mud believing they are in the Promised Land but they are actually only seeing Paradise by the Dashboard Light. 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.