Record Setting Complacency

I received a lot of questions about the CBOE equity only put/call ratio. Yesterday's reading of .32, was the lowest reading going back to 2003. That is as far back as I have data for so it might have been an all time record. The ISE equity only came in at 263. The record there is 280. Earlier this week we saw the 10 day moving average of the ISE equity reach 238, which was close to a record and only seen at major peaks.

The fact that these record extreme readings are occurring right around the time where seasonality will turn negative (in three weeks) makes me believe that we are seeing a top being formed of significance. After the initial run off the bottom in 2003 we saw an eight month correction even though we were  in the middle of a strong bull market. I believe we will see something similar if the economy holds up. If the economy falls into a double dip I believe this will mark the top. I continue to expect a top by early May at the latest.


PJ said...

My view also, but I believe a double dip is starting this month or next.

That's the forecast of, and today's first-time claims data is consistent with it -- 484,000 SA, but for some manipulation of the SA factors the worst since early November. It looks like hiring has picked up a little bit in the last month, but I expect that to wither also.

PJ said...

PS - If I am right and this double dip is beginning, then I will forever scorn the notion that the stock market discounts the future. If it's not in the headlines of Yahoo Finance, or the speeches of interested parties (and Keynesian "animal spirits" promoters) like Bernanke, today's investors don't care about it.

PJ said...

By the way, I noted a few weeks back that they re-jiggered the seasonal adjustment factors on unemployment claims to make March/April headlines look better, past headlines to look worse.

If this week's claims data used the SA factor from the same week in 2009, the headline number would have been 517,000 first time claims.

The data is substantially worse than the headlines appear. The March payroll report also had weird SA factors to make it look better.

Q for anyone: What's special about April that it needs special pumping and optimism? Are they worried about a double dip with the end of Fed MBS purchases and declining influence of stimulus? Or are they trying to support bank equity sales? Something else?