Highly Accurate Sentiment Reading That Flashes Red Light for Bulls | Don’t ignore this chart!

While many analysts follow emotional signals related to their feelings about market direction, I prefer to follow the money. I want to know what retail traders are doing with their money when it comes to options. The extreme numbers provide incredibly accurate trend reversals, which is obviously very important to any trader. I like to call the 5-day SMA of the Equities-Only Put-Call Ratio ($CPCE) my “speedboat” sentiment indicator because it is excellent at predicting short-term reversals. Track CPCE using the Custom Index (UDI) tool at StockCharts.com. Over the past two years, hedge funds have invested in Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), NVIDIA (NVDA), Meta Platforms (META), and Tesla (TSLA). These stock puts must be adjusted in the ratio because they are not reflected in retail. Options Trader. CPCE’s adjusted 5-day SMA over the past years is as follows:

CPCE measures the amount of bullishness (low CPCE readings) and weakness (high CPCE readings) in the options world. As CPCE’s 5-day moving average moves to one extreme or the other, longer-term bullishness and bearishness are indicated on the chart by red and green arrows, respectively. A short-term market high can be found whenever the 5-day CPCE reaches the .55-.57 range and declines (or less). Subsequent market declines may be very brief and sometimes very slight. The important thing here is to realize that low numbers like the ones we are seeing now provide a warning that the risk of a market downturn has increased significantly. Risk management is a top priority for successful traders.

These low potential bearish readings for CPCE will likely impact the timing of our entry into each of the 10 equal-weight stocks in EarningsBeats.com’s portfolio. We recently ended the quarter, and our flagship model portfolio returned 21.87%, easily surpassing the S&P 500’s 10.08% return over the same period. Since the model portfolio’s inception in 2018, its performance has more than doubled the S&P 500’s 182.59% versus 86.03%. We will be “drafting” our top 10 stock recommendations for the Model Portfolio and the Aggressive and Income Portfolios on Tuesday, February 20th at 5:30 PM ET. Click here to learn more and register for this free event.

Happy trading!

tom