Interim Report - The Third Leg of the Stool

Sometimes you wait months - even years - to show just one chart. However, one of the best short term timing indicators I know just fired off a signal, and I want to be sure you have seen it. It is the daily CBOE put-to-call ratio. When used only at the extremes, and interpreted properly, it can be a valuable tool in the sentiment arsenal. I have showed you this chart - last December - when it was at another extreme.

CBOE Put-Call Ratio - Daily - Near Extremes

The last time this chart was shown was back in December 2018 when the ratio was over the 1.00 level in the "Zone of Despair". As many, or more, puts were being purchased as calls - which is a highly, highly unusual situation in the options market. Usually, there are many more calls purchased on a given day. But in this case, investors were panicking because of the stock price plunge in December. My market commentary was that we might expect a turn soon.  The very next day the U.S. Federal Reserve switched from "rate hikes" to "patient mode". As you can see, the ratio immediately dropped within a few days in a fury of institutional led panic buying of calls to respond to the FED's  new actions.

Now, the situation is similar, but reversed. The indicator is now solidly back in the Zone of Speculation. There is once again a panic buying of calls - but this time at or near a market top - as the supposed 'great news' on trade and the U.K. elections forces investors to buy for fear of missing out on the supposed much larger rally to come! We'll see if 'that' happens.

More importantly, this sentiment signal is coming at a time when a key market breadth signal is beginning to roll-over to negative. It is the weekly Summation Index on the New York Composite, shown in the chart below.

NYSE Summation Index - Weekly - Divergence

You will note that both the absolute value of the Summation Index and the Slow Stochastics Indicator of it are on a divergence with the newest all-time-market highs. This indicator does not move quickly or easily. It is weekly, not daily. 

The two indicators above would be bad enough - if they were alone. I think it is worth pairing them at this time with a look at the Chaikin Money Flow, and the the MACD on the S&P500 at this time.

SP500 Cash Index - Daily - Chaikin Money Flow and MACD

One can judge that not only is volume participation diverging from this high, but the MACD is potentially on a double divergence.

These indicators are here primarily for your information. Nothing herein is intended as trading or investment advice. However, to me, taken together - and not separately - these charts indicate to me that the current market advance is at least temporarily mature, and a set back can be expected at any time. 

Have an excellent start to the day.

TraderJoe