Yesterday was the first up day in the DJIA after a 6 day losing streak, its first such streak since July 2012. The SPX index bounced right up to its 50 day moving average around 1659. Are we close to a bottom, or was that just an oversold bounce?
Of course, no one knows, and there are many indicators you can find that will paint a bullish or bearish case from here. But for me, the most surprising aspect of this current selloff is that the CBOE composite put/call ratio has not closed above 1 on any day in the month of August. That’s a rare occurrence over the past few years:
The only full months since the start of 2010 that have not seen the ratio close above 1 on any day were April 2010, December 2010, and September 2012. April 2010 and September 2012 were important intermediate term tops. There are still 6 trading days in August, including today, so we can’t include August 2013 in that group just yet.
On the flip side, many of the important intermediate term bottoms in this bull market have been preceded by a reading above the 1.20 mark. That happened in June 2013, November 2012, May/June 2012, the fall of 2011, June 2011, Sept 2010, and May 2010. Even this year’s rallies after brief pullbacks occurred in February and April after the ratio closed above 1.15.
In that sense, the options market is still a picture of complacency, despite the 6 straight down days in the DJIA. While I’ve never found much value in the day-to-day movements of this ratio, the ratio does have usefulness at the extremes. Currently, it’s still much closer to an overly bullish extreme rather than the bearish extremes that usually precede strong, sustainable rallies.