We warned back then<\/a> the put\/call ratio is an outstanding short-term contrary indicator for the broad stock market. It compares the buying interest in call options<\/a>, to the buying interest in put options.<\/a><\/p>\n A reading above 1.20 (the blue line) shows extreme bullishness among speculators and can indicate a good time to buy stocks for the short term. A reading below 0.80 (the red line) shows extreme bearishness and could indicate a good time to sell.<\/p>\n This indicator has proven to be quite accurate at timing short-term reversals in the stock market. So, the extreme level of buying interest on Monday is a bearish sign.<\/p>\n Take a look at this chart of the CPC…<\/p>\n The red arrows point to extremely low readings in the ratio. All four of the previous signals were followed by immediate declines in the S&P 500 of anywhere from 70 to 400 points. The most recent signal in June knocked 200 points off the index.<\/p>\n So, there’s a good reason to be a little bit cautious about stocks right here. Speculators are a little too willing to bet on even more upside in the market.<\/p>\n They may be right for a short while. But, as the CBOE put\/call ratio has proven time and again, when traders are jumping over themselves to buy call options, stocks are closer to a short-term top than a bottom.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n Have you profited from using the put\/call ratio signal in the past? How did you do it?<\/p>\n![\"\"](\"http:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202007\/20200708-mm-01.png\")
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