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.