Wednesday, May 18, 2011

Put-Call Ratio Signaled the Bottom

Apparently traders had been very busy buying puts this week as the put-call ratio hit 1.15 on Tuesday. Typically when this ratio hits this level it signals a near term bottom. Interesting that it occurred so close to the top this time, but considering a lot of the 'risk on' stocks were down 15, 20, or 25% from recent highs maybe that explains the level of fear was extreme even if the overall market didn't show it.

See the below chart from Birinyi Associates via CNBC. It shows how 4 out of 5 times since the March 2009 bottom that this ratio signaled the bottom.



CNBC_Bearish_Options_Activity_520.gif

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