Rough Road Ahead For An Overly Bullish Stock Market?

Put Call Ratio updated

The red line in the primary section of the chart displays the Put/Call Ratios weekly average while the blue line displays its four week moving average. The weekly average is reaching levels only seen a few times since the rally that started in 2009 kicked off. The four week average meanwhile has just closed at its lowest level since 2005. This shows that options traders own an abnormally low level of puts compared to calls and suggests that options traders also have joined the other groups of investors by becoming one-sidedly bullish. A Warning, but not a Signal, yet On the surface these extremely low levels seem like a dire warning sign, but looking back at history provides some perspective. At the end of every year since 2009, the one week ratio has always spiked into very bearish territory, sometimes offering an opportunity but also sometimes providing a false signal (with no accompanying market decline). This is shown by the red arrows on the graphic. Highlighted by the red circles on the top graph showing the S&P 500, those end of year spikes that actually turned out to be a good warning are shown. At the beginning of 2010 and 2011 this indicator provided a good warning, but at the beginning of 2012 and 2013 it did not.
Full story:


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s