As the market has continued to climb in recent weeks, option investors have increased their call trading considerably.
A little less than a month ago, the 21-day moving average on the CBOE Equity Put/Call Ratio was as high as 0.68 and that was the highest reading since November.
Flash forward 30 days and tack on close to 100 points on the Standard & Poor's 500, and the indicator has dropped sharply.
Monday’s reading on the 21-day moving average came in at 0.5977. That is the fifth straight day where the reading has been below 0.60.
There was an 11-day stretch of readings below 0.60 in May, but prior to that you have to go back to February 2012 to find such a stretch.
Both of these stretches of low readings from the indicator preceded pullbacks in the market. So you might want to invest cautiously for the next few months.
Another indicator that is concerning right now is the CBOE Volatility Index (VIX).
The VIX has closed below the 12 level each of the last two days — only the second time in the last six years that this has happened.
I know it is hard to go against the momentum, but when the optimism is so blatantly one-sided, you have to wonder how much higher the market can go.
Personally, I don’t think it is time to add to stock holdings, but it could be time to hedge your bets or take some profits.
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