The 5 day moving average of the daily CBOE Put/Call Volume Ratio reached low extremes last week indicating a lot of optimism among options traders.
That optimism has been rewarded—so far. However there are even lower reading now, both for the 5 day moving average and the daily readings.
The daily reading on May 14 was the lowest since January 17 , 2025 when inauguration day optimism was booming.
Extreme optimism like that cannot be sustained and a decline started a few days later on Jan 24 that ultimately installed a triple top: Jan 24, Jan 31, and Feb 19.
The pattern produced what W D Gann called an M A Top.
The subsequent price action has been a good example of how tops take time and distribution while lows can be V Bottoms as was the case in early April.
Bottom line, we had a 7 week Selling Panic that ran a tad shy of Gann’s full 49-55 day Panic Window if you count from Feb 19th.
Remarkably the Selling Panic has been followed by a Buying Panic.
Next week is week 7 and 5 Waves up can be seen.
The question is whether this is an initial 5 Waves up in a larger pattern or 5 Waves of a bearish B Wave.
That question will be answered by the nature of the next pullback.
The SPY respected the 586 Time/Price square-out for Tuesday/Wednesday but instead of a reaction from Wednesday’s square-out we have gone sideways. Distribution?
However with Monday, May 19th being the start of a possible culmination of this Buying Panic it is interesting that 596 “points to”/ vectors Feb 19th the day of the SPX all-time high.
Is it possible the SPX traces out a Star Burst pattern today/Monday into 596 to put the cherry on top of this rally?
Yes of course it’s possible.
Yesterday the index turned its dailies down for the first time since Let’s Make A Deal Monday—the massive gap up.
The turn down produced a rally leaving an outside up day.
With next week being an idealized turning point of this Buying Panic (Week 7) breakage now below Thursday’s upside reversal day will produce a Reversal of a Reversal or what I call a Keyser Soze.
As it is the Usual Suspects The Mag 7 are suspect. The decline in six of the secen Magnificent Seven stocks on May 15 2025 may be foreshadowing a top of some degree.
In fact Morgan Stanley notes that the Mag 7 are experiencing slowing earnings growth, making them less attractive than other S&P 500 companies.
Their outsized big cap weighting sets up be a drag on the index and psychology once we see the turn.
The extreme bullishness in Feb reflected by the low Put/Call ratio did a lot to adjust traders bullishness.
Retain investors piled in late March and early April and have been rewarded.
They have learned to not just Buy the Dip but Buy the Waterfall.
Viagra blooms. Niagara looms.
A low Put/Call Ration is not a timing indicator will not tell us when it is going to START to matter.
Tops are like Ketchup: slowly first then all at once.
As Gann stated “Time Turns Trend”.
For now we have Full Frontal FOMO.
when the turn comes, even if it’s a bullish/buyable pullback, it will be deep—
Shorts have been eviscerated, providing no buying support on a drop, and longs will rush to lock in gains with the market up on stilts.