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This last week we saw a spike in the Call/Put ratio which meets levels viewed as extremely bullish. If used as a contrarian indicator, a spike in the Call/Put ratio indicates complacency, greed, or ignorance of downside risk. This chart displays the historical occurrence of days with similar Call/Put spikes. You can see that not every Call/Put Ratio extreme day occurred at market highs like we would expect. This entails a bit of caution that the Bulls don't have to necessarily be wrong. However, many Call/Put extremes did mark price highs so it is useful to be aware of this indicator. The arrows indicate the days when there was between 253-294 Call options traded for every 100 Put options traded.
The smaller chart in the bottom left corner tracks the Cash/Equity Ratio for fund managers. It is widely believed that higher stock prices could come to fruition through fund managers chasing performance. This chart negates the "chase" theory by indicating the amount of cash reserves fund managers have on hand. Available cash to invest is approaching the lowest levels since the market top in 2007.
To view my previous sentiment analysis go to: http://1618analytics.blogspot.com/2010/01/sentiment-analysis-on-current-market.html
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