On the SPX Chartbook page I keep and update daily a dozen charts that I find helpful for gauging broad market.

Among my few favorite indicators are Put/Call 5 day average and VIX/VXV which are now flashing completely different signals.

Total Put/Call ratio – Bullish

Obtained from CBOE and as the name says, shows total number of put options divided by total number of call options for the day. It is a very good contrarian indicator as traders and investors buy more put options when fearful which often coincides with market bottoms and vice versa for market tops. It is basically a sentiment indicator and a very good one as it relies on actual transactions instead of polls/surveys.

To smooth the line I use the 5 day average.

This is a 2 year chart of 5 day moving average of total put/call with SPX price charted above.

Blog Post Put Call

Indicator is by no means perfect (no indicator is) but does have a pretty good track record. Green shaded areas show 5 day put/call above 1.125 which is my threshold for a buy signal.

Red areas show indicator below 0.825 which is a threshold for a sell signal. ( I do not trade based on 1 signal but use it as part of a multi-indicator model).

Buy signal usually triggers after a significant drawdown but this time SPX barely pulled back from the top (3.5%).

 

VIX/VXV ratio – Bearish

VIX index estimates 30 day expected market volatility by averaging the weighted prices of SPX puts and calls over a wide range of strike prices.

VXV index does the same but with a 90 day target.

High reading (my threshold is over 1) suggests too much short term fear which again coincides with cycle bottoms while low reading (0.80 threshold) suggests too much short term complacency.

2 year chart shows buy and sell signals in green and red.

Blog Post Vix Vxv

Ratio has been very low since mid-March and has dropped in signal territory 5 times in 2 months. Last time yesterday suggesting it’s time to sell.

I use the above 2 indicators (among 2 dozen others) and love when they align which they often do. Completely opposite now.

My SPX model flashed buy on Friday and I’m still positioned that way so I’m rooting for the put/call but ready to take the trade off as soon as conditions change.