Risk On/Risk Off? The Equity Put/Call Ratio

In NFTRH 461 last weekend we reviewed plenty of reasons why the market would probably put on a bounce in the micro-term. Among the reasons was this little treat from the MSM as it fell all over itself to warn us of the dangers implied by this scary sounding technical phenomenon (extra points to the Thestreet.com for going full frontal terror mode complete with exploding zeppelin).

hindenburg omen

One item also forecasting a market bounce that we did not cover (why over kill any one theme in a 65 page report?) is the Equity Put/Call ratio. Specifically its penchant for periodically spiking to signal what have been buying opportunities in the bull market. Now, the question bulls should ask themselves is will the current Thing (5) be the same as Things 1 through 4? Those things are what I call bull refreshers in a bullish market phase; but as in the run up to 2015’s market correction the CPCE’s 10 week EMA is again grinding out an uptrend, which seems to exert pressure on the stock market. The spikes act like relief valves.

vix and equity put/call ratio

But notice how the CPCE spikes during 2014 and 2015 led to bounces but then either a flat market or another hard drop. Those occurred during an uptrend in CPCE and were little more than way stations before new pressure gathered against the market.

More recently we were advised to have caution against a bear stance in June/July as the EMA 10’s trend broke down. But that appears to have been a whipsaw as the EMA 10 is back on trend and the pressure is still on. Therefore, the spike over the last couple of weeks could be called suspect as to its ability to be like Things 1-4.

With the above we are talking about very short-term stuff. But with the Potential Pivots Upcoming, I am going to stick with the plan of September on out to Q4 for some real changes in the market. I am not talking about a bear market because there is no reason to do that yet. But if there is a disturbance to close out the year the opportunities will be from the bear side and potentially, the bull side as well when the momo freaks are cleared out.

The September seasonal (courtesy of Sentimentrader), to be taken with a small grain of salt, shows the back half of the month can get pretty rough after da boyz gits back from da Hamptins, settles in and plays a few games wit da retail playahs.

As a side note, the VIX has been cleaned out as well and is going back to sleep at 11.35. While not an immediate signal of any kind, it is no longer an ally of would-be buyers.

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