Both Put-Call Ratio Signals Now on Sell Signals

By Lawrence G. McMillan

There was finally a little volatility yesterday, as President-elect Trump’s news conference halted a rally dead in its tracks. There were two resulting selloffs, but by the end of the day, $SPX had recovered and closed on its highs. It now once again stands less than two points from new all-time highs. Meanwhile, the NASDAQ Composite and its smaller companion $NDX made new all-time highs once again. Since the election, the NASDAQ Composite has made new all-time highs on 13 different days – including the last five days in a row! This is clearly where the market’s strength is at this time. Overnight, $SPX futures have been on the defensive all night and are now down about 9 points from yesterday’s close.

$SPX continues to remain (barely) within the now month-long trading range between 2233 and 2280 – and most of the time it’s been between 2260 and 2280. This reduction in realized volatility is affecting implied volatility ($VIX) of course, as well as keeping the “modified Bollinger Bands” (mBB) at fairly close levels. The +4F Band continues to hover just above 2300.

The put-call ratios continue to rise, and now both of the equity-only put-call ratios are officially on sell signals. This is a fairly negative development, but there have been cases in the past where the put-call ratio signals – especially early ones like this – have proven to be false. Even so, this is clearly a warning sign...

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