As I mentioned last weekend investors were becoming very
complacent in the market as the CBOE Equity Put to Call Ratio had dropped back
to a rather low level. A chart of the Equity Put to Call Ratio using
a 10 Day Average going back to 1997 is shown below. As you can see
this week the 10 Day Average reached a level not seen since 2000. Also notice from 1997 through 2000 the 10 Day Average dropped
back to or below the .40 level (black line) on several occasions (points A).
However the S&P 500 was still able to move higher although there were some
decent corrections (points B to C). Meanwhile from 2001 through 2009
the 10 Day Average generally stayed at or above the 0.50 level (brown line).
Finally for those that follow Wave Theory the move down from the
October 2007 high to the March 2009 low was clearly a 5 Wave pattern which could
be an "A" Wave of a larger "ABC" type corrective
pattern. Meanwhile the rally from the March 2009 low has been an
impressive corrective "B" Wave which is taking the shape of a possible
Zig Zag pattern as the final Z Wave up is occurring. In a
triple Zig Zag pattern the W, X and Z Waves are supposed to be a Zig Zag pattern
which would look like an "abc" type affair. Also remember a
"B" Wave typically can retrace retrace 50%-61.8% of the A Wave so the
S&P 500 has reached the upper end of this range as the 61.8% Retrace is at
Furthermore in this type of pattern once the B Wave completes
then the final C Wave to the downside would follow which could become an
elongated affair. An example of a similar pattern occurred from the late 1930's through the early 1940's.
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