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.