Warning signs

Put/Call ratio represents the market sentiment with the two extremes if above 1.1 (bearish) vs below 0.8 (bullish). It is one of the best contrarian indicators, meaning when it is extremely bullish (below 0.8), it is the time to be very cautious as a sort of correction is very likely coming soon or vice versa. Right now, it is at 0.7, well below the threshold of 0.8. This is one of the most scary times to chase stocks highs regardless of how bullish one is. As I said before, I'm not telling you the exact timing for the turning point but just let you know the general sentiment condition that supports a change of direction. While no one knows the exact timing, when it comes it often comes very fast and powerful, especially when at the extreme sentiment. 

Let me also share with you the warning signs posted by other professionals. 

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Warning Signs (By Lance Roberts)

It the short-term, the market seems to be headed higher. However, it is worth remembering that every previous peak of the market since 2016 has been from "all-time" highs.  

With the market at all-time highs, there are numerous warning signs of excess built up, which could trigger a reversion. 

• Low participation
• An extremely low put/call ratio (speculative excess)
• Markets trading 2- and 3- standard deviations above their means.
• Large deviations from respective 200-dma's
• High levels of investor optimism (chart below)
• A historical deviation between value and growth.
• A high level of equity allocations 
• Technical extremes (RIAPro technical gauge below)

 

 

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