Wednesday, August 21, 2013

Put/Call Ratios Still Tame

One of the reasons that I feel confident that this correction has more room to fall from here is that the put/call ratios have barely budged from optimistic level despite a couple down weeks.

total put/call ratio is still modest
Click on Chart to Enlarge

This chart of the total put/call ratio shows that the 5 day average of the put/call ratio is still a good ways from the 1.05-1.10 range that has been reached on the minor corrections since Nov 2012.  Despite a couple down weeks in the markets, the equity put/call ratio has peak at 0.65 in the last 2 weeks.  Even in the strong uptrend since Nov 2012, minor corrective bottoms have seen ratios in the 0.74-0.80 range or higher.

Given the seasonal weakness typical in Sept., the obvious technical sell configuration, and the lack of fear evident in either the VIX or put/call ratios, I believe we have a minimum of a couple more weeks of downside here until a multi week rally attempt occurs.

I would warn of the possibility of a swift move back toward or below the June lows from here.  I think we may see volatility jump over the next week or two.

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