Sunday, August 23, 2009

Put to Call ratio hit extreme on Aug 21, 2009


From the chart above you can see that the Put to Call ratio hit an extreme low reading which hasn't been reached since before 1/2/08. The reading was 0.59 and it signals an immediate Sell signal. The last time it was this low was 12/21/07 and you remember what a bad year 2008 was in the stock market. The Dow was above 13,000 in Dec. 07 in case you forgot! Friday had concurrently the Dow reaching over 9,500, as I wrote in an earlier piece on Saturday. And the S&P 500 also went back up to 1020. These are all indicators this rally's surge has peaked. It is time to sell! If you own any of the Dow stocks, Monday would be a good day to unload them and get your profits and tuck them away in a safe place. If the markets continue to go up this week, the drop will be even sharper when it happens in my view. The market has been very frothy of late and it's the average guy who pays the ultimate price in this game, isn't it. Don't let it be you this time.

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8 Comments:

Anonymous Minneloushe / Jerry said...

Charles, I'll have to dump some things at a loss, but if we are really going down (poor Obama !) I will do it, and hope to make it up later. I only have 800 TZA, and will attempt to buy more tomorrow morning, but more than 200 more shares will likely be impossible, even after selling off my MVIS. I really don't want to sell the BCON. I think it could sink, but it could just as easily rise.

11:11 AM  
Blogger Charles Amico said...

Jerry, I wouldn't sell BCON or VTSS and I would buy TZA as I did on Friday getting another 1500 shares. But I would sell stocks that have had great gains like Apple and other stocks that are responsible for this market rally. I would sell some bank stocks and even Goldman Sachs as it has had a terrific run up. Hope this helps you and others.

1:22 PM  
Anonymous Minneloushe / Jerry said...

Charles,
I still think that some day Beacon will be 10 or more. As I've said before, it may be that our daughter Hye-Young inherits it all, but ... so be it, if it is so ! We only live for the next generation anyway. For now, I have no stocks that I'm ahead on, even after this rally. I'm just a pretty terrible investor. I may just take the $5k hit on MVIS and buy a few hundered more TZA.... big risk, tho - I'm down $11k on it, and obviously you are down even more.

6:25 PM  
Blogger Mac said...

Charles, I'm not sure I agree with your interpretation of the P/C Ratio. If you take a longer view of that ratio, like going back to 2003, there have been a significant number of times when the ratio was at or below .6 and the market did not tank. In fact, there are very clear periods when the market went up after spiking down into the .6 range or lower. Plus, since the .59 score on 8/21, the P/C ratio has gone back up into the .7-.8 range.

Further, the definition of the P/C ratio indicates:

"Traditionally, a P/C Ratio of .80 or greater is considered bearish. Readings above 1.00 over a number of trading days are considered strong signs of a market bottom. Below 1.0, the readings are considered neutral in the .40-.50 range, and extremely bullish at readings below .30." (source: http://tinyurl.com/n36a9o)

So, I'm not clear as why you would put out such a strong "SELL NOW" comment with a short spike to .59. The bigger picture of the P/C ratio as well as other indicators do not seem to support it.

Mac

8:56 AM  
Blogger Charles Amico said...

Mac, what you say is true that it has been lower. Actually back in the run-up to the year 2000 peak, this indicator got as low as 0.30 and I used it then to initiate a Sell in my newsletter. So within the timeframe I had cited, it is very low and considered to me as a signal to sell. If you take the data on the chart and do a standard deviation you will see that 0.59 is greater than 2 sigma for the data. That's good enough for me to use it as a current sell signal.

As for why now, the reason is I can't time the market anymore than anyone else. So I use things like the Put to Call ratio to give me a clue as to when to consider exiting. If you have a better way, please share.

Thanks for your comment.

12:42 PM  
Anonymous Anonymous said...

Let it be known that it is Ben Bernanke and the Federal Reserve & Presidents Working Group (Goldman Sach executor)...that is literally supporting both the government bond market (publicly stated - calling it "quantitative easing") AND the US stock market (NOT publicly stated - called a "rigged & manipulated" fraudulent and unlawful attempt to buy & support US equities and lull an unsuspecting and naive people into believing that the "worst is behind us".)

Ever wonder why Bernanke & the Fed shun an internal audit by Congress, let alone a public one on CSPAN, at ALL COSTS? Printing money and burning the "buck" is the easy part...just where all that money goes and why...and what are the unintended consequences and eventual exit strategy? Now that is the hard part. And, oh by the way, it is OUR money we are talking about...and our future.

Eventually, our global credit enablers (China, Japan, and many others) will take away Bernanke's silent guns (credit & currency markets are too big for even a corrupt Fed & Treasury spending away our childrens' future) and the world will fully understand that the Emperor truly has no clothes.

Or maybe an honest politician or three can beat our credit enablers to the punch and shed some light on this madness before the economy and government (& US Dollar) simply collapses.

2:54 PM  
Anonymous Minneloushe / Jerry said...

From Barry Ritholtz:

http://www.ritholtz.com/blog/2009/08/aftermath-of-secular-bear-markets/

We are going on vacation - two weeks in New England, visiting friends. This will be the frugal version of a vacation. Saratoga - Bennington - Burlington ... then ? Cambridge - Salem - Rhode Island (Westerly) ... Lots of driving, but also lots of friends. Bringing several bottles of wine ...

Warm regards from
jw

8:19 AM  
Blogger Charles Amico said...

Thanks Jerry. Have fun up in my old neck of the woods, Burlington. They like good wine there too. :)

9:14 AM  

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