Fight This Bullish Development At Your Own
NEL
Sentiment was a HUGE problem for the bulls to start 2022 and now it's become a
similarly big issue for the bears now. If you haven't noticed, most bulls don't begin to
turn bearish until after all or most of the selling is complete. After we've endured a
nasty bear market, either secular or cyclical, most bears can't see that a bottom has
formed until after a major advance has already occurred. Media brainwashing is a real
thing and Wall Street firms use this to their advantage to exit before retail traders and
then buy back in just as retail traders acknowledge all the market weakness and bad
news.
One signal to help call market tops and bottoms is by following the long-term moving
average of the equity-only put-call ratio ($CPCE). I use the 253-day moving average
(253 trading days = 1 year) and refer to it as my "freight-liner" sentiment signal,
because it takes a long time to change the 1-year direction of the put call ratio. But the
signals produced by it cannot be ignored. Here's the chart:TCPCE GSce oaara Eas Racal RaT ESET WO Tinie,
soaps — 7 2 eg en
(aes)
[acon ore
This simply makes good common sense to me. When traders turn overly bearish and
believe the market MUST go lower, do you think they're invested on the long side?
Probably not. They've already sold. After a long period of market weakness and a
substantial increase in bearish sentiment, the market is sold out. There's little
downside, because those wanting to sell have already done so. Therefore, when this
"freight-liner" indicator begins to roll over, there's lots of cash on the sidelines to
continue to propel the market higher and higher.
At first glance, the top right now looks a little bit suspect, right? After all, it's just barely
turning down from the top and one argument is that this is a blip and the continuing
market weakness will result in another push higher in this CPCE chart. But you have to
understand a couple things. There were several readings of the daily CPCE inNovember and December that were artificially high. It was reported that big funds had
taken sizable put positions in the largest market cap companies like AAPL, MSFT,
TSLA, NVDA, GOOGL, etc. I saw those HUGE levels of put options in the CBOE half-
hour readings that I follow, so it was fairly easy to pull those professional put
buys out of the CPCE in order to reflect what retail traders are doing. After all,
when I gauge sentiment, I want to know what the retail trading community is doing.
Asa result of the above, I started a User-Defined Index at StockCharts.com, I used the
daily CPCE readings on StockCharts, but I adjusted those daily readings that clearly
needed adjusting. First, let me show you the readings that improperly impacted the
daily readings:
TEP CE SSC Ra RARER TS
a Spee tas on mee
1.35 was the higest reading EVER prior to NoviDec 2022
eC
The CPCE rises when retail traders panic. That's the historical norm and it makes
sense. The highest reading of 1.35 came in 2008 during the financial crisis. ANY daily
reading above 1.0 will coincide with stock market selling. But those November and
December readings hit a high of 2.40 during a period when the stock market
was rising! In my UDI, I adjusted the daily CPCE readings by removing these huge
increases in equity puts that occurred in the middle of trading days. There were
approximately 10 days that I adjusted. My UDI began in 2021, because I wanted to see
how the 253-day moving average was truly reacting in Qq 2022. Here is my UDI chart
on the CPCE and how it's trending now:GAPCE Baal SN FaTEa Ra Rae Loe Sinden
Sitar pe 20 Higha 2° Low 5220 Come 250 Chg 2 cians
Lessee peel ie
a
pert =
4 foes
ee E
fo fozan
fo to
ah i
LAL |ooca
Bee E
The rolling over of the 253-day CPCE is much more obvious after adjusting the
ridiculous and overstated readings from November and December. History tells us that
this is a MAJOR BUY signal. And it's not like I'm just pulling this up now to support my
bullish stance. I also provided this to our MarketVision 2022 crowd in January 2022. It
was just turning up at that time and I indicated that the stock market's biggest problem
heading into 2022 was the 253-day moving average of the CPCE just starting to turn
higher. It proved to be an excellent bearish call.
¥
Tremain adamant that you want to be long, I've had many bullish signals emerge over
the past year, but this is a very important one that is adding more bullish fuel to the
fire.
Our Spring Special is winding down and today's the last day to take advantage of
the best market guidance on the planet! If you'd like to be a part of our
EarningsBeats.com community and find out why our members are overwhelminglyHappy trading!
Tom