This is a bit of an update to the Put Call Ratio post of 26th August where I thought it could be signaling a toppy market. This is what I wrote.
The interesting thing for me is that the 20DMA of the equity only put/call ratio is now at its lowest level in the three years of the plot. That in and of itself probably means zip in the predictive sense, but if one wanted to make a case for a pause/consolidation/retracement in the indices sometime very soon, this indicator certainly would add some weight to that hypothesis.
Lots of bears are talking another major down leg, and generally I'm still a bear too, but I doubt we'll see too much downside in the medium term. But I'm making the case for a short term top somewhere around about here.
I'm claiming a minor hit with that guess. We did get a short retracement soon after that post... of course dip buyers were all over it like a rash and the bulls have pushed us to new highs.
However, that put/call ratio is still down at those extreme lows:
It's still raining greenbacks dropped from Uncle Ben's Helicopter, so there is nothing to stop this market continuing upwards. We're in pollyanna mode here, ignoring all the shithouse news coming from the real economy and pumping the "positives".
Maybe the recession IS over. I'll let time decide whether that's true, but we still have this extreme P/C reading. Tops are notoriously harder to pick with leading indicators than bottoms, and they're hard enough, but Holy mother of Mary we have to see some sort of retracement soon...
The truth is that these leading indicators are blunt tools, they need a bit of time to be right... just like a bear I guess. :)