The Put/Call ratio and the VIX show contained fear — No panic nor Capitulation

As you can see on the charts below of the Equity PC Ratio (5 and 10 DMA), while the ratio has climbed to quite a high number, it failed to beat the ridiculous levels reached in June when the market has that tiny 5 percent decline. At that time, I stated that the rise of the ratio should not be considered as a sign of panic as people were not betting the markets to go down, but rather avoiding selling their stocks and protecting them with puts. The volatility remain extremely contained and confirmed that idea.

More importantly you can yet again see that people are rushing into buying calls and driving the ratio a lot lower.

Clic for big pictures

Are a few random points indicating why is see no panic and still too much greed:
  • Collapse of VIX on Friday
  • Call buying very high
  • No analysts or strategists have revised their earning estimates and they all still call for a buying opportunity
  • And earthquake and the prospect of a hurricane didn't prevent the traders to load on risk, and create a massive 45 point rally on the S&P on a Friday, the eve of the week-end
  • Silver and Gold are still rallying near all time highs
  • The USD is still not rallying
  • The market is still very hopeful that The Bernanke will save them. On a real bottom, people will think that Fed is powerless against the tide and cannot reverse the collapse... 

Less obvious is the behaviour of the VIX. As you can see, the true panic/crash of 2008-2009 lead it extreme measures far from what we have at the moment. Even though the current readings are admittedly high, they are only as high as the April 2010 mild correction.


Tiho said...

Not every crash is going to be 2008 pej. It's just not going to be 2008... you are still stuck in 2008... man 2008 was 3 years now. It's time to let it go man! Let it RIP man. =)

pej said...

Yeah, you're right 2008. I'll let it RIP. But remember, I said already it's not "twenty-oh-eight" it's "twenty-eleven-oh-eigh" (2011-08) :-)

Tiho said...

Hahaha. That's awesome!

Instead, you turn even more bearish. Super bears are back!!

pej said...

Yeah you're right. It's not a great idea to have all the super-bears on my side... Look at what I just read on ZeroHedge from Rosie:

the market has yet to hit capitulation-like sentiment levels and the reality is that when you see articles like this surface on page B7 of the weekend WSJ — Those Safe Havens You've Been Flocking To Aren't So Safe — then you can rest assured that the bear market in risk assets has hardly run its course completely. There were enough bearish articles on gold in Barron's and the weekend WSJ (like Bubbly Gold might Take a Bath) that you know that there is little chance the yellow metal is in any danger of entering into a bear market any time soon.

Moreover, I agree about gold with him as well, hence no short position yet. The drop reminds me of the massive 2 day correction silver had a few months ago, before rallying to $50. Gold might probably rally to $2,000 prior to having another serious drop.

WHERE IS YOUR SENTIMENT REPORT DUDE? Perma-bears need it to get back to reality. :-)

Tiho said...

Well it turns out that was a bottom and bearish capitulated. Now we are up 15% from those low levels...

pej said...

yes, but that was what seems to be a dead cat bounce. The next few weeks shall be interesting ones :-)