Study: Put/Call Ratio just spiked. What happens next to stocks.


As outlined in today’s market outlook, the Total Put/Call Ratio has become very high at 1.32

I said I thought that this is a short-medium term bullish sign for the stock market. Here’s the data to support that claim.
This is what happens next to the S&P 500 when:

The Options Put/Call Ratio exceeds 1.3 (excluding overlaps in the last month), while the S&P 500 is above its 200 daily moving average (i.e. while the stock market is in an uptrend).


Click here to download the data.
As you can see, the stock market tends to go up in the short-medium term when the Put/Call Ratio spikes to above 1.3 while the stock market is still in an uptrend.

Conclusion

As you can see, the stock market tends to go up in the next 1 week to 6 months, even though the rally will be a choppy one. This suggests that the Put/Call Ratio is a bullish contrarian signal for the stock market right now.
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2 comments add yours

  1. So 76% of the time the average forward 1/2 yearly return is 5.6%. I’d be curious to see how this performance measures up on a relative basis instead of an absolute basis.
    My guess: It’s pretty close to average – ie, roughly 75% of all 6month periods in a bull market are positive and average return for any 6month period in a bull market would have to be pretty close to 5%, no?

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