Put Call Ratio Suggests a Market Sell Off is Coming
The CBOE Options Put/Call Ratio is a contrarian indicator commonly used by investors to gauge overall sentiment. The close today indirectly suggests a sell off could be looming around the corner.
The lower the reading then the more call volume is being traded versus put volume, suggesting investors are bullish on the market. On the contrary a high reading above 1.0 means there is more put volume versus call volume, suggesting investors are bearish overall.
As can be seen the ratio has a recent trading range of about .75 – 1.15.
The close today at .75 hasn’t been seen since late December 2008. Thus with the market this optimistic about the near term future one could bet that tomorrow may not be so cheery. We shall see.
2/10/09 UPDATE: Seems the market is not taking Geithner’s plan to well, updated Put/Call Ratio chart below. Note the spike today up back above .80 as the S&P 500 has fallen over 3.5%.
Extensive bullish or bearish sentiment will almost always lead to significant reversal. Let’s see where the market finishes today.
