Charting the Relative Fear Between Now and May 2011 With The Pull/Call Ratio

I find more and more signs that speculators are not panicking enough given the current market conditions.

Here's the 20 DMA (20 day moving average) of the P/C ratio on US equities:

As you can see, the P/C ratio was a lot higher in May, while the market decline now seem completely ridiculous compared to the vertical crash that is currently happening.

Even though put buying is increasing, we have not reached the level of fear that we reached just a few months ago.

Moreover, no matter what happens, speculators interpret the news as bullish. Here are some other reports showing that No matter how far down we go, people are more concerned about missing a rally than the risk of another down leg:

Aug. 10 (Bloomberg) -- The lowest developing-nation equity valuations since January 2009 are a sign that the MSCI Emerging Markets Index’s worst tumble in three years is nearing an end, according to strategists at three of the world’s biggest banks. Concern that global economic growth is faltering sent the measure down 15 percent this month through yesterday, to 8.9 times estimated profits, 30 percent below the 20-year average, data compiled by Bloomberg and Morgan Stanley show. 

Valuations imply emerging-market earnings will drop about 20 percent in the next 12 months, according to the New York-based bank. The retreat may be overdone because rising consumer demand in developing nations will boost profits by 3 percent even if advanced economies slip toward recession, Europe’s debt crisis worsens and China keeps a tight monetary policy, said Jonathan Garner, Morgan Stanley’s chief Asia and emerging-markets strategist. 

Shares may hit bottom within days, said Jason Press at Citigroup Inc. Valuations are at levels seen two years ago after Lehman Brothers Holdings Inc.’s collapse and in the 1990s emerging-market crises, said Nicholas Smithie at UBS AG. “Stocks look like buys,” Smithie, the New York-based emerging-market strategist at UBS, Switzerland’s biggest lender, said in an Aug. 8 telephone interview. “There has to be a Lehman-style collapse in economic activity and stress in the financial system for these valuations to be justified.” 

[...] Twelve-month earnings per share in the emerging index [...] may increase 19 percent in the next 12 months, according to the average of more than 12,000 analyst estimates compiled by Bloomberg. Garner at Morgan Stanley said his “base case” estimate is for earnings growth of 13 percent. 

[...] emerging-market strategist at Citigroup, the third-biggest U.S. bank, said in an Aug. 8 phone interview. “The market panic has gone too far.” 

While analysts are projecting higher profits during the next 12 months, they trimmed forecasts by about 3.8 percent since mid-July, according to data compiled by Bloomberg. 

Estimates are likely to drop further as weaker global growth erodes companies’ earnings prospects and central banks in some developing countries tighten monetary policy, said Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan in Hong Kong. [...] “I don’t think the buy point for these markets is now,” Mowat said in an Aug. 8 phone interview. [...] 

“We’ve been pecking away at things as they decline,” Ross, chairman and chief executive officer of WL Ross & Co., said in an Aug. 9 interview on Bloomberg Television. There’s “plenty that’s attractive in the emerging markets,” he said.

And another one about options:

Aug. 10 (Bloomberg) -- The biggest plunge in stocks in more than two years is prompting U.S. options traders to pay the lowest prices for bearish contracts compared with bullish ones since December 2009. 

The premium investors paid for three-month puts to sell the Standard & Poor’s 500 Index versus call options to buy dropped to 50 percent yesterday from 84 percent on July 19, a period when as much as $2.5 trillion was erased from the value of global equities. 

The S&P 500 has rallied 6.3 percent on average in the month after the gap narrowed more than 10 percent, according to data compiled by Bloomberg since 2005. 

Speculation that record profits and the lowest valuations in two years will limit losses is reducing the options price relationship known as skew. 

“The contrarian would say the more panic and blood in streets, the fewer people left to sell and therefore the closer you are to a bottom,” Bob Doll, chief equity strategist at New York-based BlackRock Inc., which manages $3.66 trillion, said in a telephone interview yesterday. “When you see the volume and the skewness that we’ve seen, I could see it as a bullish sign.”