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After seeing a 25% rally, the reasons to be cautious continue to pile up:
The ISE call put ratio, otherwise known as the ISEE index started the week off fairily high. The equity only sub-index came in at 169 on Monday and continued to stay elevated. On Tuesday it was 170 and today it closed at 167.
I’ve found the ISE sentiment tough to decipher during this bear market because of how strange it has acted but the 3 continuous days at 169 and higher show a level of call buying that we haven’t seen since very late last year (Christmas and beyond). That, as you’ll remember, was a very poor time to be bullish on the stock market.
CBOE Put Call Ratio
The more traditional put call ratio - also equities only - shows a similar picture. Here’s a 21 day moving average of the CBOE put-call ratio with the corresponding tops in the market:
Remember Jim Cramer? The guy who was gutted like a fish by Jon Stewart? The guy who went on TV, almost weeping, telling people late last year to take their money out of the market for the next 5 years? Yeah, that guy, he’s bullish again and leading “Cramerica”, once again, to the slaughterhouse. Last Thursday he announced that the “depression” is over and the market has seen the bottom.
With the Alcoa (AA) kicking off earning season, we are now in a market cycle which lasts about a month and which is well known for its weakness. I’m not sure why exactly earning season is a bad time historically to be invested in the market but it is. Numerous studies have shown it to varying degrees. You can stay up to date with this earnings calendar from the Wall St. Journal.
Finally, as I’ve mentioned already in previous sentiment overviews, we’ve seen a general return to optimism through the various sentiment indicators and surveys. Although some of this is to be expected and warranted for a return to normalcy, it is another element we have to throw into the pot.
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