The CBOE Total Put/Call Ratio ($CPC) is nearing an extreme that coincided with the January and April peaks. Before looking at the details, keep in mind that market sentiment is hard to pin down. First, there are many ways to measure sentiment (VIX, Put-Call Ratio, Advisor Sentiment). Second, the goal posts sometimes change. An extreme one year might not work the next year. What works in a bear market might not work in a bull market. Third, sentiment can hit an extreme and remain at an extreme during a strong trend. We also see this with momentum oscillators that become overbought and remain overbought during strong uptrends. The chart below shows the 5-day EMA for the CBOE Total Put/Call Ratio nearing the lows from January and April. This indicates that call volume is outpacing put volume. The ratio is above 1 when put volume exceeds call volume and below 1 when call volume surpasses put volume. In other words, option players are becoming more and more bullish. Extremes below .70 corresponded with the January peak and the April peak. Notice that the 5-day EMA turned up 1-2 weeks before the market (SPY) actually turned down. The 5-day EMA is currently falling and needs to turn up from this extreme to suggest a short-term top in the market.
No change. The 60-minute chart confirms the first support level around 122. The exact resistance breakout is just a bit higher, but SPY established support with a few bounces last week. A move below 122 would be the first sign of short-term weakness. I am also watching RSI with support in the 40-50 zone. A break below 40 would turn momentum bearish.
Key Economic Reports:
Tue - Dec 14 - 08:30 - PPI
Tue - Dec 14 - 08:30 - Retail Sales
Tue - Dec 14 - 10:00 - Business Inventories
Tue - Dec 14 - 15:15 - FOMC Rate Decision
Wed - Dec 15 - 07:00 - MBA Mortgage Applications
Wed - Dec 15 - 08:30 - CPI
Wed - Dec 15 - 08:30 - Empire Manufacturing Survey
Wed - Dec 15 - 09:15 - Industrial Production
Wed - Dec 15 - 10:30 - Crude Inventories
Thu - Dec 16 - 08:30 - Initial Claims
Thu - Dec 16 - 08:30 - Housing Starts/Permits
Thu - Dec 16 - 10:00 - Philadelphia Fed
Fri - Dec 17 - 10:00 -Leading Indicators
Charts of Interest: Tuesday and Thursday in separate post.
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This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
