Put-Call Ratios Make New Lows

By Lawrence G. McMillan

Stocks continue their wild ride. Yesterday, $SPX gapped open strongly higher, then gave back all the gains in a very short period of time when Fed Chairman Powell said that the Fed might not be buying everything, forever. But that selloff was quickly reversed in a matter of minutes. In the end, $SPX closed nearly 60 points higher, It closed right at the lower edge of the gap from last Thursday. If that gap is filled (at 3182), it would be another bullish sign. Short-term support exists at 2965 (Monday’s low, which was left in the dust by the 188-point rally that followed in about 1 trading day, as Monday’s lows were made in the morning and Tuesday’s highs were also registered in the morning; the move in futures was even larger). Below that, support in the 2920-2940 range is important. It is the top of the trading range from April-May; if $SPX were to fall back into that trading range, it would negate a lot of work that’s been done since then.

Overhead resistance exists at 3230 (last week’s highs), 3330 (the top of the Feb 24th gap), and then the only remaining obstacle would be 3390 (the all-time highs).

Equity-only put-call ratios plunged again, with both of them making new relative lows. The standard ratio is now down to 50 (almost unimaginable) and the weighted ratio is approaching the low levels of last December. As we’ve stated before, the reason that the standard is so much lower is that the “public” is buying cheap out-of-the money calls, inflating volume and driving the standard ratio faster downward than the weighted which is measuring dollars being spent on calls. This analysis was confirmed yesterday by a report that showed the number of small-lot option purchases has skyrocketed since the March bottom. Stories of unemployed speculators making money in the stock market are beginning to surface...

This Market Commentary was excerpted from this morning's edition of The Daily Strategist Newsletter.