Everybody in the world was buying put options on Friday.

Okay… maybe not everybody in the world. But there was an awful lot of put activity… and not so much call option activity. The action was so skewed that it sent the put/call ratio to its highest level in over a year. Take a look…

This ratio chart simply shows the number of put options traded every day divided by the number of call options traded. Since most investors tend to lean bullish, there’s almost always more action in calls than in puts. So, the average reading on this chart over time is about 0.85.

When the ratio strays too far away from the 0.85 level, it displays an “extreme” condition – which is often an excellent contrary indicator.

For example, look at the 0.63 reading on the chart that happened in late January. Investors were buying far more calls than puts. It was a sign of extreme investor optimism, and it occurred just as the market was hitting a new all-time high.

Look also at the next two peaks on the chart– in early March and mid-February. Those readings indicated extreme investor pessimism. And that happened as the market was hitting short-term lows.

Here’s how the S&P 500 looked at those points…

The two previous peaks in the put/call ratio provided excellent signals that the stock market was near at least a short-term bottom.

On Friday, the put/call ratio hit its highest level in the past 15 months. And it happened at a time when the broad stock market was retesting its February closing low.

This tells me we’re very close to at least a short-term bottom for the stock market. Traders should be betting on a bounce.

Best regards and good trading,

Jeff Clark

P.S. Nothing gets me quite as excited to trade than oversold conditions like these. Environments like these practically give winning trades away.

And my Delta Report subscribers are just as excited. Because when volatility is high, my earnings algorithm has the potential to churn out more trades with higher upside.

If you’re interested in joining them, and taking advantage of new trades each week, click here.

Reader Mailbag

Today, a mixed mailbag…

Just a quick note to say thank you for helping coach patience. I missed out on getting into WMT the other day, but put in a good-till-cancelled (GTC) order at $3.60, then today was watching the movement and modified it up to $3.65, getting in pretty solid at that price. In earlier days, I likely would have chased it and felt I “had” to get in for maybe $3.40 or so.

Learning a lot here, Jeff, and sincerely appreciate it. Careful and steady wins the long-term race! Thank you!

– William S.

 

Jeff, Re: the issue of frequency of your trades, I feel compelled to put my two cents in. I’m an old guy, been around a long time. I used to be a futures pit trader, then was a registered broker with a major house on the Street in NY, registered for commodities and securities.

I haven’t been following you long. But have been mightily impressed with your trading style. And what has impressed me most is that you don’t have a trade(s) every day. Instead, you keep your powder dry, pick your shots and only do trades when it’s right for you. You wait for situations when your technical indicators align in ways that historically have given you a good percentage of winners. And, guys, that’s all we can ask for.

You don’t need a lot of trades; you just need good trades, where you can fairly comfortably go heavy and most of the time win. Good on you Jeff.

– William L.

 

Good morning, I wanted to write this while I still have access, as my subscription will soon lapse. Mainly I wanted to express my heartfelt appreciation to Jeff for extending a free year to former subscribers. It was unexpected, generous, and classy – well beyond mere professionalism. I certainly can’t say the same for how your previous publisher ended the subscription (well, except for the unexpected part).

The reason my subscription is lapsing is not due to any dissatisfaction with the current newsletter, but because I am not an active or nimble enough trader to recoup the cost of the subscription. But I wanted to tell you why and how much it’s meant to me.

A quick explanation: My husband was a career Air Force officer, and he enjoyed a fulfilling and successful career. We were blessed that he had a steady job, and that together our family could support his role in the Air Force. Our history and country is not perfect, but this is a great country. It was an honor.

It also meant frequent moves, raising children (often solo due to his career), and countless two-day road trips home to stay with and assist two sets of elderly parents. I still make trips home as my dad, the last one left, is now 96. Fortunately parents didn’t require much help until our kids were older, and not all at the same time, but each in turn over the years. This is not a complaint or regret; it is simply reality and explanation. I didn’t have a career. It’s why I treasure, perhaps more than some others, learning about investing. It’s an area where I can learn and act on my own schedule.

So thank you again for your gift of an extra year. For the attitude, insights and patience you express. The time you take to educate. Only someone who loves their profession and teaching would do as you do.

Blessings to you and your family. I’ll miss you!

– Virginia

And a response to Friday’s Minute, “Volatility Has Returned to the Stage”…

I agree. I stepped aside already. I think we’ll test 2500 at least with all the trade stupidity going on. Yes there are problems, but they should have been addressed long ago when they first surfaced. But I think there is a dirty plan in effect somehow. Too many things coming together. New Silk Road, gold for Yuan, our deficit on steroids, add dark pool bunch, manipulation of all markets, and…?

Whenever country feds get together, everything they hatch is a new dirty plan for all citizens. Think about it… All countries need cheaper currencies to pay back debt. Who wins (governments and the owners of their fed – the big banks) and who loses (every citizen not in their clique).

Good chance for a rough 2018-19. Get cash and precious metal coins you can hold in your hand.

– Bernard

Thanks to everyone, as always, for your thoughtful words. Keep then coming right here.

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