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Well at least in the short term.
Conventional Put/Call ratio wisdom dictates that low readings are bearish and could help identify tops, and high readings bullish and may help identify bottoms. The data below shows that this may not necessarily be true in all cases, specifically, that relatively low readings could be bullish.
Recently the 10 and 21 day Moving Average of the Equity Put/Call have been approaching multi-year lows. I decided to see what odds this may provide us with regards to both the Short and Long term. I focus on the 21 day MA below. Yesterday the 21 day MA of the Equity P/C closed at .63, it's lowest reading since 2007
Short Term:
Unless my data is incorrect, it appears that when the equity P/C crosses below .64 for the first time, the odds favor .... both LONGS AND SHORTS! That's right, just flip a coin and go long or short. As you can see, historically, the S&P has closed down 25 out of 31 (83.9%) times within 4 days. Interestingly, it has closed up 23 out 31 times (74.2%) within those 4 same days. I suppose the take away from this is that we should expect volatility in the coming days and we should not overstay our welcome on either side.
Long Term:
The long term however is surprisingly and decidedly BULLISH. Approximately two months later (40 trading days), the S&P was trading higher 23 out of the 31 (74.2%) instances.
Some notes about the table below:
The table shows the performance of the S&P 1, 2, 3,4 and 40 trading days after the Equity PC crossed below 0.64
Column '4day-' shows the number of days it took for the market to trade DOWN from the signal day. A value of '0' means it did not trade down within those 4 days.
Column '4day+' shows the number of days it took for the market to trade UP from the signal day. A value of '0' means it did not trade up within those 4 days.
Conventional Put/Call ratio wisdom dictates that low readings are bearish and could help identify tops, and high readings bullish and may help identify bottoms. The data below shows that this may not necessarily be true in all cases, specifically, that relatively low readings could be bullish.
Recently the 10 and 21 day Moving Average of the Equity Put/Call have been approaching multi-year lows. I decided to see what odds this may provide us with regards to both the Short and Long term. I focus on the 21 day MA below. Yesterday the 21 day MA of the Equity P/C closed at .63, it's lowest reading since 2007
Short Term:
Unless my data is incorrect, it appears that when the equity P/C crosses below .64 for the first time, the odds favor .... both LONGS AND SHORTS! That's right, just flip a coin and go long or short. As you can see, historically, the S&P has closed down 25 out of 31 (83.9%) times within 4 days. Interestingly, it has closed up 23 out 31 times (74.2%) within those 4 same days. I suppose the take away from this is that we should expect volatility in the coming days and we should not overstay our welcome on either side.
Long Term:
The long term however is surprisingly and decidedly BULLISH. Approximately two months later (40 trading days), the S&P was trading higher 23 out of the 31 (74.2%) instances.
Some notes about the table below:
The table shows the performance of the S&P 1, 2, 3,4 and 40 trading days after the Equity PC crossed below 0.64
Column '4day-' shows the number of days it took for the market to trade DOWN from the signal day. A value of '0' means it did not trade down within those 4 days.
Column '4day+' shows the number of days it took for the market to trade UP from the signal day. A value of '0' means it did not trade up within those 4 days.
Ticker Date/Time Close e p/c 4Day- 4Day+ PChg N1 PChg N2 PChg N3 PChg N4 PChg N40 ^GSPC 3/19/2002 1,170.29 0.62 1.00 0.00 -1.58 -1.43 -1.84 -3.28 -6.77 ^GSPC 5/15/2003 946.67 0.64 1.00 0.00 -0.25 -2.74 -2.85 -2.46 6.04 ^GSPC 6/2/2003 967.00 0.64 0.00 1.00 0.47 1.99 2.39 2.15 2.30 ^GSPC 6/6/2003 987.76 0.64 1.00 3.00 -1.20 -0.30 0.98 1.09 -0.50 ^GSPC 7/8/2003 1,007.84 0.63 1.00 0.00 -0.56 -1.90 -0.96 -0.39 1.83 ^GSPC 7/14/2003 1,003.86 0.63 1.00 0.00 -0.34 -0.97 -2.20 -1.05 1.92 ^GSPC 8/20/2003 1,000.30 0.63 2.00 1.00 0.30 -0.72 -0.66 -0.36 4.98 ^GSPC 8/28/2003 1,002.84 0.64 0.00 1.00 0.52 1.91 2.34 2.51 2.60 ^GSPC 9/4/2003 1,027.97 0.63 1.00 2.00 -0.64 0.36 -0.47 -1.66 1.85 ^GSPC 9/17/2003 1,025.97 0.64 3.00 1.00 1.33 1.01 -0.31 0.30 3.17 ^GSPC 9/24/2003 1,009.38 0.63 1.00 0.00 -0.61 -1.24 -0.28 -1.33 3.28 ^GSPC 9/30/2003 995.97 0.63 0.00 1.00 2.23 2.44 3.40 3.85 5.82 ^GSPC 10/9/2003 1,038.73 0.64 1.00 2.00 -0.06 0.64 1.03 0.77 2.19 ^GSPC 11/24/2003 1,052.08 0.64 0.00 1.00 0.17 0.61 0.58 1.71 8.50 ^GSPC 4/15/2004 1,128.84 0.64 3.00 1.00 0.51 0.62 -0.95 -0.42 -0.31 ^GSPC 11/15/2004 1,183.81 0.63 1.00 0.00 -0.71 -0.16 -0.02 -1.14 0.33 ^GSPC 1/26/2005 1,174.07 0.64 2.00 1.00 0.04 -0.23 0.61 1.31 -0.23 ^GSPC 1/31/2005 1,181.27 0.64 0.00 1.00 0.69 1.01 0.73 1.84 0.01 ^GSPC 2/2/2005 1,193.19 0.64 1.00 2.00 -0.28 0.82 0.71 0.76 -1.70 ^GSPC 3/28/2005 1,174.28 0.64 1.00 2.00 -0.76 0.61 0.54 -0.12 1.67 ^GSPC 3/31/2005 1,180.59 0.64 1.00 3.00 -0.65 -0.38 0.07 0.29 1.44 ^GSPC 5/27/2005 1,198.78 0.63 1.00 2.00 -0.61 0.29 0.46 -0.23 2.70 ^GSPC 11/10/2005 1,230.96 0.64 3.00 1.00 0.31 0.23 -0.16 0.02 4.77 ^GSPC 5/25/2006 1,272.88 0.63 2.00 1.00 0.57 -1.02 -0.22 1.01 -0.94 ^GSPC 7/3/2006 1,280.19 0.64 1.00 0.00 -0.72 -0.48 -1.15 -1.00 1.88 ^GSPC 7/6/2006 1,274.08 0.64 1.00 0.00 -0.67 -0.53 -0.13 -1.21 2.33 ^GSPC 10/25/2006 1,382.22 0.64 2.00 1.00 0.50 -0.35 -0.31 -0.31 2.61 ^GSPC 5/4/2007 1,505.62 0.62 4.00 1.00 0.26 0.14 0.46 -0.94 0.92 ^GSPC 6/14/2007 1,522.97 0.64 4.00 1.00 0.65 0.53 0.70 -0.67 -4.55 ^GSPC 10/5/2007 1,557.59 0.64 1.00 2.00 -0.32 0.49 0.31 -0.20 -5.47 ^GSPC 6/11/2009 944.89 0.64 2.00 1.00 0.14 -2.24 -3.48 -3.62 5.52 ^GSPC 8/6/2009 997.08 0.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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