More Bearishness From CBOE Equity Put-Call Ratio

Posted by barkand on June 17, 2011 under Market sentiment | Be the First to Comment

At the beginning of this week, we noted how the CBOE equity put-call ratio was indicating a high amount of bearishness in the stock market. There was a daily reading above 1 – meaning more puts than calls –  for the first time in nearly two and a half years. Usually this ratio works well as a contrary indicator.

And now, the ratio has gone above 1 two more times this week. These three readings above 1, plus another recent near-miss at 0.99, mark the only four times the ratio has exceeded 0.82 in the past year. The chart below contains the past two months of data, plus a 200-day moving average currently at 0.60.

In our previous post on this subject, we explained that crossing above 1 just once is usually good for at least a modest short-term bounce in the market and a cluster of high readings within a week or so can magnify the effect. At this point we are expecting a good rebound in the market. It might not last very long, so enjoy it while it lasts.