I prefer real money down measures to study sentiment and my favorite is the all-equities put / call
ratio. A very low P / C ratio indicates the market is overly bullish and a high P/C implies players
are too bearish. A good measure to capture this portrait of sentiment is a 13 wk. m/a of the CPCE
The powerful advance in the SPX from late 2011 through mid - 2015 saw a sharp downtrend in
the CPCE that carried to very low levels by late 2014 and signaled traders were too bullish on an
intermediate term basis. The low in the 13 wk. P / C ratio coincided with the end of the gigantic
QE program by the Fed. Since then, sentiment has gradually turned less positive as the P / C ratio
trend worked persistently higher into the early autumn of last year following the first sharp sell-off
of a market correction that carried into Feb of this year. With the subsequent rally, bearishness
has eased somewhat but still remains fairly high. Note too, that the bearish trend of sentiment has
yet to reverse course but remains hanging in the balance.
The takeaway here is that from a contrarian perspective, the market has more upside to it down the
road, but that in the absence of a reversal of the P / C trend, players need to acknowledge the
potential for another sell-off before the corrective process of the market may be fully behind us.
The bottom panel of the chart shows the NYSE TRIN indicator. This is a measure of buying vs.
selling pressure, with a high TRIN signaling selling pressre and a low TRIN indicating net buying
pressure. The heavy selling pressure in evidence since the first significant corrective hit to the
market over Half '2 '15 has tapered off substantially since then, with direction of pressure now
neutral over the past couple of months.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!