Equities only put/call ratio ended at 0.55 today. Is this good or bad for the market?

This is an excerpt from today’s daily update to my premium members.

The CPCE (equities only put/call ratio) can be used as a contrarian indicator at extreme levels. At >0.90 a bottom is often imminent, whereas at levels <0.55 a top of some sort is often imminent. The extremely high readings are rather reliable and often indicate a longer term bottom whereas the extremely low readings are not as reliable, and can be either a short term or longer term top. So what does today’s reading of 0.55 mean for the stock market?


As extreme as it may sound, <0.55 has happened 12 times over the past 6 months (red and green vertical lines). No real surprise since it’s a Bull market. But, shorter term this meant that in 9 occasions lower prices followed within 1 trading day (green vertical lines), while during 3 occasions higher prices followed (red vertical lines). Hence, odds favor lower prices short term. If we add the two 0.56 readings (blue vertical lines), then those odds increase from 75% to 79%.

This analyses fits with my preferred view of the S&P500, which is either finishing an irregular b-wave to SPX2510 +/- 5 or an ending diagonal triangle for a 5th wave, also targeting SPX2510 +/- 5.  But before we get there I expect first a short term pullback to SPX2485 +/-2, which fits with the CPCE reading and study results.

The alternate bullish count is that of a set of nested 1st and 2nd waves off the SPX2417 low, with price now in wave (3) of iii of 5. This wave iii targets SPX2540ish and ultimately the S&P500 could then very well top in the SPX2580 region. However, if the S&P500 tops in the SPX2510 target region and then drops below SPX2480 we can expect SPX2400 instead.

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  1. Pingback: Are consistently low put/call ratio’s bad for the stock market? | INTELLIGENT INVESTING

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