LIVE MARKETS-From complacency to fear: Equity Put/Call ratio swing has traders on alert

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FROM COMPLACENCY TO FEAR: EQUITY PUT/CALL RATIO SWING HAS TRADERS ON ALERT

At Thursday's intraday low of 6,557.82, the S&P 500 .SPX was down 6.03% from its January 27 record closing high. With this, the benchmark index flirted with a significant support zone before bouncing to end at 6,606.49.

Meanwhile, traders are noting that on Wednesday, the five-day moving average of the Cboe Equity Put/Call ratio hit 0.756, or its highest level since September 10, 2024.

The Equity Put/Call ratio is a market sentiment indicator that measures the ratio of the trading volume between put options and call options. Since it only includes puts and calls on individual stocks, and excludes index and ETF options (which are often used for hedging purposes), it may more accurately reflect the state of retail speculative sentiment.

A low ratio suggests excessive retail bullishness, which can be a contrarian sell signal. Conversely, an elevated ratio can indicate excessive fear, or a contrarian buy signal.

The five-day moving average somewhat smoothes short-term volatility in the ratio.

On January 22, or three trading days ahead of the S&P 500's record close, this measure fell to 0.462, or its lowest level in nearly four years, suggesting complacency.

Traders are now on alert as it now remains to be seen if Wednesday's elevated reading will roughly coincide with a market bottom of some form, especially since the S&P 500 flirted with an important support zone on Thursday, ahead of Friday's seasonal change.

(Terence Gabriel)

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