Whereas many analysts observe sentiment alerts that contain emotions about market path, I desire one which follows the MONEY. I wish to know what retail merchants are doing with their cash with respect to choices. Excessive readings present eerily correct reversals in pattern, that are clearly essential to any dealer. I wish to name the 5-day SMA of the equity-only put-call ratio ($CPCE) my “pace boat” sentiment indicator because it’s wonderful at predicting SHORT-TERM reversals. I observe the CPCE utilizing the Person-Outlined Index (UDI) instrument right here at StockCharts.com. Over the previous two years, there have been events (principally throughout This fall on Wednesdays) when hedge funds have purchased a MASSIVE variety of fairness places on most of the largest cap corporations on this planet, like Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), NVIDIA (NVDA), Meta Platforms (META), Tesla (TSLA), and many others. These fairness places must be adjusted OUT of the ratio, as a result of they don’t replicate on the retail possibility dealer. This is my adjusted 5-day SMA of the CPCE over the previous couple years:

The CPCE measures the quantity of bullishness (low CPCE readings) and bearishness (excessive CPCE readings) within the choices world. Prolonged durations of bullishness and bearishness are marked within the chart with purple arrows and inexperienced arrows, respectively, because the 5-day shifting common of the CPCE strikes towards one excessive or the opposite. Any time that we see the 5-day CPCE attain the .55-.57 vary to the draw back (or decrease), we will search for a potential short-term market prime. Be aware that subsequent market declines could also be fairly temporary, and typically very gentle. The takeaway right here is to appreciate that low readings, just like the one we now have proper now, present us a warning that the RISK of a market decline has elevated considerably. Managing danger is a prime precedence for profitable merchants.

This low potentially-bearish studying on the CPCE will very doubtless influence the timing of our entry into 10 equal-weighted shares in every of our portfolios at EarningsBeats.com. We simply accomplished the top of our newest quarter, the place our flagship Mannequin Portfolio gained 21.87%, simply outperforming the S&P 500’s achieve of 10.08% over the identical interval. Because the inception of our Mannequin Portfolio in 2018, its efficiency has greater than doubled the S&P 500 as effectively, 182.59% vs. 86.03%. We’ll be “drafting” our High 10 Inventory Picks for our Mannequin Portfolio, in addition to our Aggressive and Revenue Portfolios, on Tuesday, February twentieth, at 5:30pm ET. For extra info and to register for this FREE occasion, merely CLICK HERE.

Comfortable buying and selling!

Tom