Research Excerpts

The Put/Call Ratio: If The Market Can’t Rally Here, It’s In Trouble

Posted on: Monday, October 22nd, 2018

At the end of last week we published our October Monthly Investment Compass (MIC, access requires subscription), which is a collection of key charts, data, and intermarket analysis that convey our best investment ideas for US and global stock markets, US market sectors and industry groups, individual stocks, and US interest rates and related assets for the next one to several quarters.  It includes an accompanying video in which Chief Market Strategist John Kosar discusses each chart’s implications for upcoming US financial market direction. 

One of the 40 charts and data series we displayed and discussed in that report was the CBOE Put/Call Ratio, which provides information about the relative trading volumes of equity put options versus call options.

CBOE Put/Call Ratio since January

The rightmost green highlights in the chart below show that the CBOE Put/Call Ratio has for the past week been hovering at a previous multi-year most bearish extreme, indicating a high ratio of put volume versus call volume.  The other green highlights show that, as a contrary indicator, similar extremes have closely coincided with every near term bottom in the S&P 500 this year.

This means that, unless the S&P 500 (SPX) recovers from major support near 2768 this week, the US broad market has probably changed it’s previous positive bias and is now in the early stages of a major bearish trend change — and headed significantly lower later on this quarter.

 

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