This Stock Market Indicator Reaches “Lowest Level in Nearly 20 Years”
Here’s what happened “the last time the 10-day put/call ratio made a lower extreme”
by Bob Stokes
Updated: July 21, 2020
After a big trend reversal, it's not unusual for the correction to retrace much of the initial sell-off or rally.
Thus, many investors are fooled into believing that the old trend has resumed.
This quote from our monthly Elliott Wave Financial Forecast explains how this phenomenon often plays out in bear markets:
Conditions at the [first countertrend rally] high often seem as good if not better than they were at the bull-market peak. This is certainly how investors feel now, as the sentiment figures attest. Surveys show nearly as many bulls as they did at the [bull market] high.
No, this quote is not from 2020, but from the April 2000 issue of our Financial Forecast.
At the time, the stock market was in the early phase of a big bear market.
There's a good reason for bringing this subject up now in mid-2020.
This July 19 CNBC quote provides insight:
Bullishness among investors with $1 million or more in a brokerage account they self-manage was up 13% from last quarter, according to the latest E-Trade Financial investor survey, from 41% to 54%.
And, our July 15, 2020 U.S. Short Term Update provides another perspective on investor sentiment. Here's a chart and commentary:
The 10-day CBOE equity put/call ratio is at .441. Not only is this a new extreme for the rally, exceeding also the peak reading at the February 19, 2020 top, but it's the lowest 10-day average in nearly 20 years. The last time the 10-day p/c [ratio] made a lower extreme (.418) was on September 7, 2000...
Now, do understand that sentiment extremes can become even more extreme. That's another way of saying that the CBOE equity put/call ratio is not a precise investment timing indicator.
However, sentiment extremes are useful in putting investors "on notice" to pay close attention to the market's Elliott wave pattern, which does offer more precision.
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Get Timely Insights into the Trend Channels of …
… the Dow Industrials, NASDAQ Composite and the NASDAQ 100.
You can find these insights in the just-published July Elliott Wave Theorist.
As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, notes:
[Ralph N.] Elliott noted that a parallel trend channel typically marks the upper and lower boundaries of an impulse wave, often with dramatic precision. [emphasis added]
With that mind, the trend channels of the three indexes mentioned are sending an urgent message.
Get the details now.
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