This was my pre-hour note to my DW Family this morning. What a reversal we saw today with SPX shooting up 30 points early today to finish the day with 30 points down! I think it becomes really likely we will see a fire sale early next week.
Here is an analysis by a guru option expert about the current market condition. He used a different contrary indicator, stock Put/Call ratio. Apparently he is also very much worried about another crash soon.
For example, last Friday, the CBOE Put/Call ratio (CPC) closed at 0.76. That’s an indication of investor exuberance, which often warns of a potential decline.
The CBOE Put/Call (CPC) ratio measures investor sentiment (a contrary indicator) by taking the total volume of put options traded on a given day and dividing it by the total number of call options.
Whenever the ratio spikes above 1.20, it indicates traders are rushing to buy put options and make bearish bets – which is bullish from a contrarian standpoint. When the ratio drops below 0.80, traders are aggressively buying call options and betting on an upside move – which is ultimately bearish.
For example, last August – after the S&P 500 had fallen 9%, and it looked like the world was ending – the CPC hit 1.28. That coincided with a bottom in the stock market.
In late November, after the S&P had rallied 300 points on the heels of President Trump’s victory, the CPC hit 0.78. The S&P 500 dropped 250 points just a few days later.
So, it’s probably worth noting the CPC closed at 0.72 on Wednesday.
In other words, despite all of the volatility this week, traders were still jumping over themselves to buy call options.
It’s rare for the stock market to sustain any sort of a rally when the CPC is this low. So, while investors might be breathing a sigh of relief that the market has rallied back from the DeepSeek decline, traders ought to be looking over their shoulders right here.
The CPC indicator is suggesting there’s another short-term decline in front of us.
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