That explains basically how the market behaved last week. So, if you don’t like how the market is behaving today, just wait until tomorrow.<\/p>\n
In periods like this, where the stock market is flip-flopping all over the place, there aren’t too many indicators that will give reliable, short-term trading signals. The action is just too inconsistent.<\/p>\n
But, the CBOE Put\/Call ratio (CPC)<\/a> seems to have a pretty good track record this year. And, it says we should be looking for a bounce from here. Take a look…<\/p>\n This chart shows the total volume of put options traded divided by the total number of call options. It’s best used as a contrary indicator. In other words, when there’s a lot more volume in call options, investor sentiment is too bullish. From a contrary standpoint, that’s a bearish indicator.<\/p>\n On the other hand, when there’s a lot more volume in put options – signaling traders are getting scared – that tends to be a bullish indicator.<\/p>\n The red arrows on the chart point to the times where the CPC was quite low – meaning traders were overly bullish. From a contrary standpoint, that should lead to a market decline.<\/p>\n The blue arrows point to times when traders were overly bearish. That condition often precedes short-term market rallies.<\/p>\n Here’s how the S&P 500 responded to those signals…<\/p>\n The CPC signal didn’t always mark the absolute point for a reversal higher or lower. But, it was usually within one or two days of marking a decline (the red arrows) or a bounce (blue arrows).<\/p>\n Last Thursday, the CPC jumped to 1.31 – meaning there was a lot more volume in put options than in calls. That’s at a level which often coincides with at least a short-term low in the stock market.<\/p>\n This doesn’t mean we’re out of the woods and the S&P 500 is ready to mount a sustainable, intermediate-term rally back to new highs. We probably have to suffer through some more back-and-forth action before the market is ready for that.<\/p>\n But, we could certainly see a brief two- or three-day bounce in stock prices get started right away.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n![\"\"](\"https:\/\/jc-stable.s3.amazonaws.com\/ee-assets\/channels\/articles\/mm\/201810-mm\/20181022-MM-01.png\")
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