CPCE Put/Call Ratio and SPX S&P 500 Daily Charts; Assessing Arrival of Substantive Top

SPX Daily Chart

The CPC and CPCE put/call ratios have been indicating ongoing complacency and fearlessness in the stock market despite analysts and pundits feigning worry and fear on television, the internet and in print. They wax worry but 10 minutes later are buying stocks.

The put/calls indicate a stock market top at hand. The failure in the utilities (scroll back to look at previous charts) is a bigtime warning signal for stocks. Despite this ominous backdrop, stocks rally for 3 weeks on the Fed talk, inflation and job data, and other drama creating choppy confusion.

The charts show a bunch of little circles. They look like tiny bubbles, in the wine, as Don would sing. You have the warnings from the put/calls and utes that a world of hurt is on tap for stocks. The next step is waiting for the negative divergence to set up on the SPX daily and 2-hour charts so you can call the top.

First, let's take a quick look at the signals. The green circles indicate panic and fear so that is the time to buy stocks or at least nibble on longs. You want to run toward the burning stock market as everyone else is running away with their hair on fire. You can take their shares off their hands as they swear they will never own a stock again. Of course, the panic and fear abates, and stocks then rally nicely, and more sucka's are born. There's one born every minute, you know.

Conversely, the red circles show complacency and fearlessness about owning stocks. The Federal Reserve saves the day all the time so 'what, me worry?', as Portugal The Man sings? The dip-buyers are worried they are missing the next rally. Short-covering has popped stocks over the last 3 days. Late Friday, you can tell some short players were holding-on all day waiting for stocks to reverse but they did not. These traders started covering into the close unwilling to hold the shorts over the weekend and whammo, the indexes went vertical as others panicked about the shorts they were holding and ran for their lives.

As February started, you see the complete relaxed attitude about owning stocks. The CPCE was below 0.50 with everyone throwing darts at the stock pages to buy stocks after the robust January rally. They concluded that every stock goes up. Everything was expected to continue higher but, as the CPCE chart showed, the euphoria was overextended and the day of reckoning occurs with the collapse in stocks starting with February.

Another panic bottom occurs as March begins so that is time to buy and a strong 3-day rally occurs. However, price reverses hard as traders rush to short the market no longer believing in the January joy. The complacency did not reappear in early March and stocks were driven lower for the March low.

Note that when the market top occurred as February started, the neggie d (red lines) was in play also ready to smack price lower. The MACD line had a hair more fuel in the tank, however, and that is why the SPX price comes back up over the last 3 weeks.

The mirror image occurs in March. Price comes down for the two lows, and positive divergence (green lines) is in play ready to launch price higher, but note that the MACD remains weak and bleak and wants to see a lower low in price on the daily basis going forward.

The low in the CPCE on 3/20/23 identifies a substantive top but after only a one-day pullback of about 70 points, stocks were off to the races higher again on the Fed drama and data daily drama. The CPCE only made it up to 0.76 so the buying of stocks did not involve panic and fear. It was mainly dip-buyers afraid of missing out on the rally and then shorts covering adding rocket fuel to the rise in prices.

The CPCE comes down again to 0.59 since everyone is fat, dumb and happy about owning stocks not worried about any collapse of any great significance. This brings us back to the statement above that to call the top we need to see the neggie d on the daily and 2-hour charts.

Looking at the SPX daily chart indicators you see green lines showing higher sloping lines that are long and strong. The sole red line is the stochastics that are overbot and agreeable to a pullback in the daily time frame. The others are gun-ho for higher prices. It is likely that a few days are needed to jog a top into place. 

The blue rising wedge points to an equal top coming at 4175. It would not take much to get there. Another short-covering rally would do it. If price slumps for a day or so, then up again for a day or two, then the indicators may start to position with neggie d, then down for a day or two, then back up for a day or two when the MACD will likely be last to go neggie d and call the top in the daily time frame. So adding those days together are about 8 days of jogging topping action. This puts a top in the daily time frame late in the week ahead or in the following week say 4/6/23 through 4/14/23 as a guestimate. The charts will tell you the exact timing as it occurs in real-time.

The SPX 2-hour chart works in a faster time frame obviously so it will likely top-out Monday or Tuesday and then experience fits and starts until it tops out in sync with the daily probably about a week out.

The SPX has violated the upper band so the middle band at 3965 is on the table and lower band at 3840. Despite the sharp rally for 3 weeks, the ADX remains flat or lower at 12 indicating that the upside move in stocks is NOT a strong trend higher. The ADX needs to move above the high-20's and 30 to indicate that an up, or down, trend is strong. The stock market chops sideways the last few months indicating that no strong trend exists. This is correct, stocks are choppy sloppy sideways. Directionless chop suey.

The retreat in February and early March due to the stock market complacency and neggie d was a loss of about 400 SPX points over 6 weeks time. Once she begins rolling down hill again, this drop should be matched and bested since utes have gone to Hell.

Since news and emotion rules the day and has helped generate the bull rally, this can work in the opposite direction as well. A top in the US stock market should occur any day forward (on negative news) or within a 5 to 10 trading day time frame when the daily chart sets up with neggie d (and you will know this occurs by simply watching the chart develop).

On a side note, the slope of the SPX 150-day MA is a critical cyclical market signal and you can see it continuing to slope flat or negative (purple box). The call has to remain a cyclical bear market for now but with prices running above the 150, by definition, the moving average will curl higher. The two other major cyclical signals, the SPX 12-mth MA cross and NYA 40-wk MA cross, are both in cyclical bull market territory so the 150-day is the straggler. All 3 need to agree to chart the new road ahead which is starting to look like a cyclical bull market but not so fast.

The jury remains out and as explained with all this windbag mumbo-jumbo, there is drama ahead. With the utilities in a major failure which is a bigtime negative for the US stock market going forward, and the put/calls showing complacency, and many of the shorts getting washed-out over the last few days unwilling to short again, and the SPX daily chart setting up with neggie d over the coming days, the cyclical bear may begin growling very loudly. The SPX would need to drop below 3960 to prove the bears got game.

Take it day by day going forward and watch for the neggie d to develop on the SPX daily chart. Do not be surprised if markets top out any day forward and a drop of over 400 SPX points will occur going forward. If the neggie d is allowed to set up first over the coming days, say by Good Friday or Easter Monday or Tuesday, and then bad news hits, that will be double-whammy tanking stocks far lower. The holiday now adds another layer of drama in the market.

Speaking of Good Friday, which was actually bad for Jesus that day, US markets are closed. Stocks tend to float higher into a holiday weekend so the bulls smile. The full moon is Wednesday and stocks are typically bullish through the full moon so the bulls smile again. Passover begins Thursday so trading will probably be thin as the week plays out.

If the timing ends up right, the Easter Bunny is going to lay a big brown egg on the New York Stock Exchange. 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 Tuesday Morning, 4/4/23, at 5:36 AM EST: The bull orgy continues with commodities and copper providing further buoyancy in the stock market. Oil pops on OPEC news about cutting production. New money typically flows into the stock market to begin a new quarter which creates buoyancy in stocks. Bring up the SPX daily chart so you can note the top-forming process. Price makes a higher high. The RSI is only up a hair but you still call it long and strong. Ditto the histogram and MACD line. The stochastics, however, are cooked in overbot territory and negatively diverged. Money flow is also negatively diverging against price. So money flow and stoch's say the top is in for the daily time frame but the RSI, histo and MACD say not so fast; a few more days are needed. Bring up the SPX 2-hour chart. Price makes the higher high. The indicators are all neggie d except for the MACD line which is typically always the last indicator kitten that needs herded to make a call. Thus, a jog move is needed on the 2-hour (down-up in price) to turn the MACD neggie d. This negativity on the 2-hour will then conspire with the negative stochastics and money flow on the daily chart to send stocks lower. The 2-hour predicts the top in two candlesticks which is 4 hours so this afternoon stocks should top out. Stocks would be expected to drop for a day or two due to the neggie d but the long and strong RSI, histo and MACD on the daily will bring price back up in the daily time frame so another high in the SPX is ahead say 2 or 3 days out or so, once the 2-hour chart's negativity plays out. Stocks are usually happy through the full moon and before a holiday weekend so that jives with stocks recovering, say, Wednesday afternoon or Thursday into the holiday (Good Friday). Thus, the top in the daily chart, that will kick-in the put/call and ute negativity, is likely on tap next week. If you are a nimble day trader, you can take a short flyer once you see the MACD going neggie d on the 2-hour chart which may be late morning or after lunch today but do not marry the position it is only a quickie short trade since the bulls should boost stocks again for a few days to create the top probably next week. As always, positive news may impact the charts and extend the top and negative news may simply kick-in the negativity desired by the put/calls and utilities and begin the downside for the stock market in earnest. The Easter Bunny, Peter Cottontail, has a pants-load but for now keeps hopping higher.