Monday, October 13, 2014

3 Year High in Total Put/Call Ratio Today

Today the CBOE total put/call ratio spiked to 1.53 which is the highest it has been in over 3 years.  Also the VIX is nearing levels last seen in the very large correction in 2011 where SPY declined 21% in 5 months from top to bottom.

So what is the significance of this reading?  Well for those who follow this blog closely, you know that I always point out the importance of divergences occurring at market turns.  And when we see a new extreme like we are in the put/call ratio, that is telling us that "fear" is high, but the fact that there is no divergence present, it indicates that the correction has NOT made a low.

So from this point, we may be close to a rally attempt after a big downer like this, but in my opinion, the rally will be a shorting opportunity on at least an hourly time frame basis.

Given the larger pattern at play here (possibly an ending diagonal in the Dow 30), prices may decline relatively sharply all the way back to the Oct 2013 low.  That would be another 10% lower in the Dow 30.  So just be aware here that if a bull market top is in place, the whole character of "oversold" will take on a new meaning over the coming weeks.

I will continue to update here at potentially important market turns and try to offer contingency plans at each event.

Pete

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