Lowest Put-Call Ratio in 3 Years Suggests Near-Term Caution Is Warranted

Summary

Recent put-call ratio hit a 3-year low Prior elevated readings preceded the 2010 and 2011 summer corrections Credit markets and current economic data suggest mild correction

Summer is officially here. The kids are out of school and families are beginning to embark on summer vacations. Everyone is in a good mood, particularly investors when looking at equity put-call ratios.

Currently, the 10-day moving average for the CBOE equity put-call ratio rests at 0.50, the lowest reading seen since the spring of 2011 which marked the top before a nasty correction in the summer. When we have seen sentiment this overly bullish over the last five years future returns in the coming months have not been pretty.
Just take a look at the green boxes below which highlight the periods when the ratio has been this low in the past (shown inverted in the chart in red below), which have also corresponded to peaks in the market.  (more)

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