There is a big disconnect with the mood of the market and these equity put call ratios. You have more equity puts traded than calls today and that is rare, usually only happening during panics. Today is far from that and yet the equity put call ratio remains sticky above 1. It is at an obscene 1.20 right now. The past two days closed out with ratios above 1.
It seems traders are hopeful about a Greek bailout package but it doesn't reflect at all in the equity put call ratios. Something seems broken here and I can't explain it. Sentiment is not nearly as bearish as these options are telling us.
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billions in hedge funds are hedging for the inevitable
Alternatively prices don't look nearly as bearish as the market is. Billions of hedge funds are sitting on the bid being filled by the panic selling which doesn't gather steam because the market is so well bid.
But yes, this has been going on for almost two weeks. Options sentiment has been much more negative than you would expect for these price levels.
Same thing goes for all the ways of measuring noob traders. Rydex for example is also adding bear assets and liquidating long assets way faster than price declines would warrant.
Personally I think it's (in this order)
-The QE trade unwind (noobs who thought markets were going up due to QE are selling)
-Greece/Debt Ceiling/General credit panic selling
-Economy slowdown panic selling
It's really strange. My main expanation is that the underlying markets are so well bid that all this dumping is just not having an impact, but it is actually there and has been going on for two months now.
The other possibility (remote) is that this time really is different and billions of dollars are indeed correctly speculating (for the first time in history) that a contagion crash will occur and the underlying markets are stupid not to see it coming.
starting from last year, the smart money has shown up in options stats. recall in the big move up there was alot of call buying
it's a controlled crash.
Maybe it's the inverse of the bull run, where option sentiment was at peak levels for a long time (although not really it was never as high as in April 2010 but definitely elevated) and it all just slowly but surely trended in the direction of option sentiment.
I dunno, it seems like a good idea to pick a bottom around here but then again it seemed like a good idea to pick a top for a lot of 2010 and first quarter of 2011 as well.
My first instinct is to believe that people are too bearish but I still see the same knuckleheads on CNBC expecting a bounce when the market is up. And they are usually wrong or permabulls.
I have to agree that the crowd is wrong but they may have a lot more longs accumulated over the past 2 years then I ever imagined.
real question is, what does a temporary bailout of greece equate to on the s&p.. 2%? 3?% 5% upside? seems a bailout is but guaranteed but the media does a good job at selling doubt.
then mayube the reward may substantiate the risk over the weekend
CNBC? Are oyu joking? Here are the stock-market relevant headlines on their front page:
How Miserable? Index Says the Worst in 28 Years - Bearish
Consumer Sentiment Worsens Leading Indicators Increase - Neutral
Wall Street Braces for New Layoffs as Profits Wane - Bearish
RIM Shares Plunge as Outlook Spooks Investors - Bearish
Merkel Now Backs Private Role in Greek Aid Deal - Bearish (Markets don't want private involvement but it's not a biggie as long as they get their dough)
Debt-Ridden Greece Enters New Phase of Crisis - OMGENDOFTHEWORLD Bearish
IMF Cuts US Growth Forecast, Warns of Crisis - Bearish
Greece: Why the Worst Might Actually Happen - OMGENDOFTHEWORLD Bearish
Greek Reshuffle Fails to Boost Confidence: Official - Bearish (by the way I see a 2% bounce off the lows in Europe, that's confidence)
Bullish...
A Greece bailout probably paves the way to SPX 1300, so I guess around 2-3%. But long term, the real problem is domestic, not international. The US market only enters lasting bear markets when its own economy goes in the tank, not others.
central bankers and politicians have become experts in the fear psy ops & resolution trade past 2 years. i don't expect any different regarding greece.
This market is heading down with extreme prejudice. We'll be below 10000 by end of July.
Nov 21 2008 and Aug 17 2007 were the only other 2 times with EPCR over 1 for 3 days in a row. Of course the 1930's are not in the sample but....
That is why I am surprised at these readings. I remember August 16, and November 20. The volatility was huge during those days, and the market was plummeting before making a panic bottom. They both were Thursdays before options expiration. This time, no plummeting, and no panic bottom. The VIX didn't even break 25 this time, barely spiking on Thursday.
So net net what does it mean. We are in rareified air here.
I am still leaning towards June 16 being a bottom, all things considered. The stats all back up that case. But I don't think the snapback will be that strong just because we didn't go down all that much.
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