Over the last few months, we’ve seen fear amongst market participants increase precipitously and actually stay elevated for extended periods of time. One way to illustrate this is by looking at the 50-day moving average of the put-call ratio which reached 1.07 as highlighted on the chart below. The put/call ratio is a measure of fear and greed in the market.
You’ll quickly notice on the chart below that in the last instances where the 50-day ma of the put-call ratio hit 1.07, the market was nearing a significant low. This is not a market-timing indicator, however, it does speak to the fact that the current fear in the market is similar to what is typically seen near local bottoms during a bull market.
We can see how these readings play out during a bear market by looking at the 2006-09 period. These readings also often corresponded to local bottoms during the vicious bull market of 08, one of the readings occurred in March 2008 before the infamous “bull trap”. Of course, this is a limited data set to draw any real conclusion from but does give some additional context to the current setup on the equity markets.
Another interesting development we’ve seen over the last few months has been a rising corporate insider buy/sell ratio. Corporate insiders must disclose when they trade their company’s stock. They are closely watched by the investment community as they often have a good view on the health of their company and whether or not the stock’s price is overextended. Spikes in the corporate insider buy/sell ratio often correspond to local market bottoms. We’ve not yet seen the ratio spike to quite the same levels as we saw in 2011, 2016 and 2020 but is currently at levels where we’ve previously seen significant lows occur.
Once again, while this data is interesting and insightful, the entire data set is based on recent bull-market price history which could lead to a bias.
Oil broke down very aggressively last week which could signal the beginning of a larger move down in the commodity. Weekly momentum is beginning to flip into bearish territory which could materialize into large downside if we see oil prices follow through on the recent breakdown, we are watching this chart carefully.
The bullish setup on the stock market remains very much anticipatory, seeing follow-through on this move would increase the odds of seeing disinflation materialize and the bullish case play out. Market participants are well aware of this, oil needs to give up the ghost in order for the primary driving forces pulling down the market to dissipate (inflation and rising bond yields).
The chart below shows there is a lag time between crude oil futures and what consumers pay for gas.