Summary
Stock market sentiment seems to be all over the place, which is probably a good thing with the major indices near all-time highs. One of the most stretched sentiment indicators is the five-day CBOE equity-only put/call (P/C) ratio. The five-day P/C has been mostly in the overly optimistic range of 0.51 to 0.59 since mid-September. And yes, that is a very extended period of bullishness among equity option investors. Indeed, it is the most extended period of low P/Cs since late 2020 into late 2021 -- and stocks did extremely well during that period, which is a great lesson about sentiment. Investors tend to catch a big portion of a bull market but often are far off plan at major market bottoms and market peaks. Another lesson is that the stock market doesn't usually sell off until some of these option investors actually turn the switch and become less bullish. That is why we don't get concerned when P/Cs are low. But when the 21-day P/C starts to trend higher, it's often time to head for the exit. Since September 2024, the 21-day P/C has remained in a downtrend, although there were a few false starts to the upside that reversed lower after a w
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