Monday, August 24, 2009

Relative Equity Put/Call Reading on Friday is Lowest Ever

I’ve discussed the equity put/call ratio a few times recently. In the June 12th blog I showed how extremely low readings have often been followed by selloffs. I also did a follow up to that study in the August 14th blog. The criteria I used was a put/call ratio of more than 25% below its 200-day moving average.

The CBOE has only reported the equity put/call ratios since 10/2003. On Friday the CBOE reported the lowest relative equity put/call ever. It came in at 0.39, which is nearly 45% below its 200-day moving average. This is only the 2nd time it has closed as much as 40% below the 200. The other time was 11/15/04. The SPX dropped 0.7% the next day but that was basically the end of the selloff. A few more days of chop was followed by a further market rally.

Below I’ve listed all instances where the equity put/call came in 33% or more below its 200ma.

It will be interesting to see if the inclination to sell off following extremely low equity put/call ratios can overcome the market’s recent positive momentum.

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