CBOE Equity Put/Call Ratio Surges to One-year High

Stock indexes gapped lower at the open Thursday and never looked back as institutions remained aggressive sellers. TICKscore closed at -76, the seventh consecutive double-digit negative reading. Cumulative TICK closed at -83,000, keeping the 20-day moving average in a clear downtrend. Advancing volume closed at an incredibly low 1.4% of total NYSE volume, guaranteeing that the 20-day moving average of NYSE up volume will come in below 40% for a third consecutive session at Friday’s close. This will trigger the bullish ‘washout’ signal discussed at the end of Wednesday evening’s commentary.

The CBOE equity put/call ratio surged to a high .96 at Thursday’s close, the first .90+ close since March 2009. Over the last few years, unusually high equity put/call ratios have been a poor indicator of a short-term bottom. It hasn’t always the case, but since mid-2007 a reading this high has been a good indication that a bit more downside lies in store. In the table below I’ve listed each of the last 30 instances in which the equity put/call ratio closed at .90 or higher after closing below .90 the previous session. Note that in all but two cases, the S&P proceeded to post a subsequently lower close within the next five sessions (which is consistent with the elevated number of new 20-day lows discussed in today’s intraday update)…

CBOE Equity Put/Call Ratio Closes >= .90
05/20/10… ???
03/05/09… Lower S&P close two sessions later
02/19/09… Lower S&P close one session later
02/17/09… Lower S&P close one session later
01/12/09… Lower S&P close two sessions later
01/07/09… Lower S&P close two sessions later
12/12/08… Lower S&P close one session later
11/18/08… Lower S&P close one session later
11/10/08… Lower S&P close one session later
11/06/08… Lower S&P close three sessions later
10/23/08… Lower S&P close one session later
10/15/08… Lower S&P close five sessions later
10/09/08… Lower S&P close one session later
10/06/08… Lower S&P close one session later
09/15/08… Lower S&P close two sessions later
09/09/08… Lower S&P close four sessions later
07/10/08… Lower S&P close one session later
06/20/08… Lower S&P close two sessions later
04/15/08… No lower S&P close within five sessions
04/08/08… Lower S&P close one session later
03/19/08… No lower S&P close within five sessions
03/14/08… Lower S&P close one session later
03/06/08… Lower S&P close one session later
03/04/08… Lower S&P close two sessions later
02/28/08… Lower S&P close one session later
02/05/08… Lower S&P close one session later
01/17/08… Lower S&P close one session later
01/15/08… Lower S&P close one session later
01/08/08… Lower S&P close five sessions later
11/16/07… Lower S&P close one session later
08/14/07… Lower S&P close one session later

Should we bounce on Friday, indications suggest a bit more downside is likely next week.

The only positive development on Thursday was the fact that the severity of the drop sent the major indices into extreme oversold territory. The OEX 2-day RSI closed under 2.0, historically a good indication that a short-term bottom is nearby. The last 30 occurrences are shown below…

OEX 2-day RSI Closes Under 2.0
05/20/10… OEX ???
02/20/09… OEX +0.5% two sessions later
10/08/08… OEX -8.6% two sessions later (*)
01/22/08… OEX +2.2% one session later
01/04/08… OEX +0.3% one session later
02/27/07… OEX +0.6% one session later
02/12/07… OEX +0.7% one session later
06/13/06… OEX +0.6% one session later
06/24/05… OEX +0.7% two sessions later
03/22/05… OEX +0.1% one session later
01/04/05… OEX +0.1% two sessions later
03/10/04… OEX -0.5% two sessions later (*)
01/22/03… OEX +1.1% one session later
09/03/02… OEX +1.8% one session later
07/23/02… OEX +5.9% one session later
06/03/02… OEX +0.3% one session later
04/26/02… OEX +0.0% two sessions later
04/09/02… OEX +1.2% one session later
09/20/01… OEX +2.4% two sessions later
06/18/01… OEX +0.4% one session later
02/23/01… OEX +2.1% one session later
11/10/00… OEX +1.5% two sessions later
10/11/00… OEX +0.7% two sessions later
09/26/00… OEX +0.2% one session later
09/15/00… OEX -0.3% two sessions later (*)
04/14/00… OEX +4.2% one session later
01/24/00… OEX +1.1% one session later
01/04/00… OEX +0.3% one session later
08/04/99… OEX +1.0% one session later
07/26/99… OEX +1.2% one session later
08/31/98… OEX +4.2% one session later

In 27 out of the last 30 occurrences, or 90% of the time, the OEX posted a higher close (above the setup day’s close) within the next two sessions, significantly above the 65% random chance for a higher OEX close 1-2 days later in the same time frame.

Categories : Archived EOD Commentary, End-of-Day Commentary

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