Sunday, November 7, 2010

Put/Call Ratio Finally Moves

The equity only put/call ratio has finally moved out of its neutral range into an area that is often associated with tops. The inverted PPO 50,5,1 does a good job of indicating when the CPCE is approaching a level of excessive optimism as measure by the red line in the lower pane.

As far I can tell, the PPO of the CPCE as shown above gave the best measurement of market sentiment during this latest rally. While many sentiment polls showed either strong or excessive optimism, the PPO of the CPCE stayed in the neutral zone. This was a great clue that the rally had the potential to run. We will watch this one more closely in the future.

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