Well, it is Zero Hour +1 day since the Sars-like virus outbreak that the media assigned as the reason for yesterday’s stock market pullback. Not surprisingly, happier stories attend this morning’s pre-market attempt to open green.
But clearing away the daily and weekly noise, we continue to have a mania fomenting in stocks that may or may not need some volume and vertical action in order to terminate. Regardless, among the mass of sentiment indicators flashing danger the Equity Put/Call ratio seems compelling to me.
While not a fine timer, it correctly forecast the 2016 market recovery out of the Brexit and NIRP hysterias. It correctly forecast 2018’s market corrections after the January 2018 blow off readings in so many other sentiment indicators, and it correctly forecast the relief out of the 2018 Christmas Eve massacre and even more so, the bull phase out of the summer wracked with trade war anxiety.
While I am not looking for anywhere near the January 2018 extremes in some survey-related sentiment indicators (Investors Intelligence, AAII, etc.) the 10 week moving average on the Equity Put/Call ratio has already dropped below the January 2018 episode. This is dangerous. But since mania is in play the danger cuts both ways. That’s why it might be best to watch the headline stock indexes at this time because their own price/momentum/volume dynamics will probably be the tell on the party’s end. No sign there yet, but when juxtaposed against signals like this you’re going to get a good case for a top when these things come together.
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