The equity put/call ratio is above .80 once again and is at a level last seen in early November of last year. We noted the elevated ratio in November last year when it equaled .82 and the S&P 500 Index was trading at 1,379. Since that November 9th report, the S&P 500 Index is up 12.5%. Could the current ratio of .85 be suggesting excessive market bearishness again? As we noted then, the market does have a history of reversing at P/C ratios above .80.
"The equity P/C ratio tends to measure the sentiment of the individual investor by dividing put volume by call volume. At the extremes, this particular measure is a contrarian one; hence, P/C ratios above 1.0 signal overly bearish sentiment from the individual investor. This indicator's average over the last 5-years is approximately .7, indicating the individual investor has been generally mostly bullish and more active on the call volume side"
|From The Blog of HORAN Capital Advisors|