• 3 hours The Investment Sector Defying A Global Pandemic
  • 5 hours Face Masks Become The Key To Economic Recovery
  • 9 hours Impact Investing Remains Strong Despite COVID-19 Market Downturn
  • 11 hours Global Stocks Are Soaring On Fresh Vaccine Hopes
  • 13 hours Rethinking Mining: A $10 Trillion Opportunity
  • 1 day Smart Investors Are Betting On This COVID-Proof Industry
  • 1 day Disney’s Digital Pivot Could Be Its Saving Grace
  • 1 day What Does Tesla's Million-Mile Battery Mean For Green Energy?
  • 1 day U.S.-China Tensions Are Reaching A Boiling Point
  • 2 days Gold Remains Strong Amid Increasing Economic Uncertainty
  • 2 days Morgan Stanley And Goldman Sachs Are Betting Big On This Budding Industry
  • 2 days Global Corporate Debt Soars To $9 Trillion
  • 2 days The Fed’s Slippery Slope
  • 2 days Precious Metals Pulled Ahead Of The Pack In The First Half Of 2020
  • 2 days Tesla Faces $20 Billion In Short Interest
  • 2 days China's Economic Recovery Remains Tepid
  • 2 days Silver Inches Closer To $20
  • 3 days The Secret Life Of Lithium
  • 3 days The Pandemic Proof $53 Billion Industry Wall Street Can’t Ignore
  • 3 days Will Gold Hit $2,000?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Chris Vermeulen

Chris Vermeulen

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

Contact Author

  1. Home
  2. Markets
  3. Other

Insight from Greed, Volatility, and Put/Call Ratio

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

 

Back to homepage

Leave a comment

Leave a comment