Insight from Greed, Volatility, and Put/Call Ratio

By: Chris Vermeulen | Thu, Jul 21, 2016
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I was recently looking at the CNN money website where they post this fear & green index. I caught my attention because many other aspects of the market are now also showing signs an imminent correction in the stock market.

This analysis is a contrarians play, meaning you believe that when mass majority of market participants are thinking and doing the same thing, you believe the market is about to change direction.

Let me share with you a few data points that are screaming that the masses are overly bullish and on stocks, buying shares like they know what they are doing, and have no fear of stocks dropping in value.

Take a look at the fear & green index below from CNN money.

Notice the current level "Extreme Greed", and also the chart below showing the historical data. Its trading up near record levels and there is only one way to go from here - down!

What will change these participant's minds? Well, they need to see stock prices fall fast and hard and for the crap to get scared out of them before they change their line of thinking.

Fear and Greed Index

The total put/call ratio is something you may follow. I used to follow it, but now just focus on during what I feel is a critical turning point in the stock market, like right now.

This is a messy/noisy chart but the important thing to get out of this is that the black line that is down at extreme lows tells us everyone is betting and leveraging their money in anticipation of higher stock prices. There is a delay from when we see low reads like this till the market tops and that time looks to be any day now.

The red line on this chart is of the SP500 index, which will fall in value once this last bit of upward momentum stalls out.

Extreme Put/Call ratio Daily Chart

The volatility index is trading near long term lows and "when the vix is low, its time to go", as the old saying says.

Below is not a chart of the vix but rather of a VIX ETF symbol VXX. I talked about this recently in a trading analysis video for subscribers of my ETF newsletter.

Long story short, you will should see the repeating price pattern that takes place. Because of the way VIX ETFs are built they naturally lose value over time, but that is not the point here. In fact, because of the natural price decay of this ETF it clearly exaggerates this repeating price pattern in the VIX would is very difficult to see without the exaggeration of price decay.

VXX
Larger Image


Conclusion to Greed, Volatility, and the Put/Call Ratio:

What does this chart point to? Well, keep in mind this is the WEEKLY chart. But in short, we should expect a BIG spike up in the VIX shortly and a sharp decline in stock prices.

 


There are many different ways one can play this next move. In one of my next articles I will share with you a couple very interesting VIX ETF trading strategies for this next move.

Get My Articles and ETF Trades Delivered To You Inbox: www.TheGoldAndOilGuy.com

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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