One Chart That Scares Me
Back on June 26, I noted the One Chart That Scares Me - the CBOE options equity put/call ratio. Then I gave another update two weeks ago and noted it looked scarier actually. Well, here’s another update and things are the same, I still think this says weakness is coming.
Below was the chart I used back in late June. As I said at the time, as long as it is trending lower, this is bullish. The big concern was how low things had gotten. In other words, how potentially complacent options traders had become. A move higher from these low levels could produce some troubles for the bulls - as this ratio tends to trend inversely with the equity prices.
Rewind back to two weeks ago and the ratio had finally turned higher. What was a concern was now a full-fledged worry. Also the Russell 2000 (RUT) made a potential double top. Both of those were clues some near-term weakness was likely to happen. Here’s the chart from two weeks ago.
What’s it look like now? The RUT has totally broken down, the SPX finally cracked some yesterday and the put/call ratio is firmly pointing higher with no signs of a change in trend anytime soon. As long as this ratio is going higher, I’d be more defensive.
This isn’t the end of the world and I still think we should have a nice second half of the year when all is said and done, but between sentiment getting a little too frothy, seasonality a big worry, and the chart above - I think it pays to be very open to further weakness the next few months.
Thanks for reading.
Photo by Elisa Perusin
Recommended for You
An Arizona man is accused of using his company credit card to pay for, tip and give gifts to strippers he befriended online.Credit.com
SAN FRANCISCO (AP) — Facebook CEO Mark Zuckerberg and his pediatrician wife, Priscilla Chan, are expecting a baby.Associated Press
The Pentagon awarded $4.83 billion in new defense contracts Wednesday -- all but $495 million of which was contained in one single award. The lucky winner of this award -- all $4.34 billion of it -- is ...Investopedia
Seven months ago (before I knew about my termination), my wife and I decided to extract $180,000 to pay off the mortgage of our only residence in preparation for retirement. In addition to the 20% I paid when receiving the withdrawal to pay off our mortgage, the IRS is asking for another $15,000.…Bankrate.com
Oppenheimer's Ari Wald says the combination of narrowing breadth and seasonal weakness could set up for a stock market pullback.CNBC
Jim Cramer goes over his game plan of stocks and events he will be watching next week, including this event that could send averages into a nosedive.CNBC
Republicans in Congress have been working to kill the Iran nuclear deal almost before it was even completed and in the past week, a new strategy has emerged. Under the agreement negotiated in advance with Congress, the president will be able to commit the United States to the deal unless Congress…The Fiscal Times
All eyes on China. "Mad Money" host Jim Cramer wants you to look for a major discount on this stock if China tumbles.CNBC Videos
Kansas reported Friday that it collected slightly less in taxes this month than expected, and officials attributed the $3.7 million shortfall largely to a national softness in consumer spending affecting ...Associated Press
The company is adjusting to what may be a very period of low oil prices.TheStreet.com
There's more bad news for the coal industry. On Thursday, Bloomberg reported that the biggest...Business Insider
At 5 p.m. on Tuesday, a gong will be struck at the Fox News headquarters in New York. At that moment, the five most recent national primary polls, “as recognized by FOX News,” will be averaged, and the top 10 Republican presidential candidates will get invites to the network’s prime-time debate…FiveThirtyEight
In keeping with our longer-term prediction for gold, we believe a major low in silver will be coming shortly, which could result in a near-term rally of significance, but setting up a much longer-term ...MarketWatch
In the last two months, foreigners net sold close to $10 billion of their portfolios in emerging Asia ex-China, data provided by Credit Suisse shows. Indonesia, Malaysia and Thailand have "capitulated" ...Barrons.com
The latest natural gas production figures for the United States may indicate that a future filled with cheap and abundant gas is not so certain after allOilprice.com
$27 million is going to 114 of the company's 370 employees.USA TODAY
How Puerto Rico's possible debt default may impact the global economy, with CNBC's Kate Kelly.CNBC Videos
Depending on the tax rates of you and your children, a traditional IRA may net a larger inheritance.Kiplinger
The Swiss Franc is getting crushed.Fortune
They aren't afraid of credit cards but realize they're a double-edged sword.Money