SPY Put-Call Ratio Falls While CPCI Soars

SPY Put-Call Ratio Falls Almost to 20 dma

SPY Put-Call Ratio Falls Almost to 20 dma

The SPY put-call ratio fell today almost to its 20 dma, and so did the CPCE.  The CPCE fell from a spike through its top Bollinger Band on Monday.

But the CPCI spiked from its lower Bollinger Band up through the upper band today. This is surprising heading into the first day of the new quarter.

The CPCI Spiked Today

Meanwhile, the CPCI Spiked from its Lower Bollinger Band Through its Upper Band

SPY put volume rose by 7% today on a big rise in open interest. SPY call volume rose by 47%.

Together, the ratios are bearish. The only question is whether the bearishness gets blown in one swoon to the bottom of the SPY 2-year+ rising wedge (possibly as the head of an inverse head and shoulders) or whether the selling is sustained and disciplined enough to complete the ES triangle and then break down. That would be a must-short for a potential drop to 1850 or a bit below, and would be another step in setting up a potential major top.

You often see these CPCI surges a little early before the right shoulder of an important head and shoulders turns.  The potential triangle on the ES chart is in the right shoulder position of a potential head and shoulders.

ES Potential Triangle Could Morph Into Other Formations

ES Potential Triangle (Navy Blue) Could Morph into H&S or Inverse H&S

ES Potential Triangle (Navy Blue) Could Morph into H&S or Inverse H&S

So we continue to have a consolidation between ES 1955 and ES 1980, where no consolidation was needed. ES was all set up to run to the top of its orange megaphone and make a new high, killing the head and shoulders on the chart.

It was also legal for a downward breakout from the orange megaphone for a plunge to the bottom of a larger megaphone at roughly 1850.

But instead it seems to be forming a triangle here (navy blue on chart).

If the triangle actually completes, it will likely break out downwards. Triangles in a head and shoulders right shoulder position are usually bearish.

But if the triangle breaks out before completing, it’s probably forming either an inverse head and shoulders (if the premature breakout is downwards) or a head and shoulders (if the premature breakout is upwards).

I’d short any breakout through ES 1955/SPY 196 because of the potential for a melt-down to ES 1850 or even a bit lower. And I’d go long on any breakout through ES 1980/SPY 198.50 because of the potential for a melt-up to a new all-time high.

But any breakout from an incomplete triangle would have high odds of running out of steam well below the target.

For a premature breakout upwards, there could be trouble in the ES 1988-1991.25 area. For a premature breakout downwards, the bottom of the 2-year+ rising wedge in the ES 1940ish/SPY 195ish area is an obvious major hurtle to get through.

SPY Put-Call Ratio (Updated)

The SPY put-call ratio as of yesterday’s close was 3.08.

That’s very bullish, but it was not yet at its top Bollinger Band and its not opex week, so it could get more bullish still.

The CPCI was at 0.66, at its bottom Bollinger Band.  The last time that happened was August 11.

This makes it likely that either the potential triangle will break out upwards, or that it will morph into a megaphone or even an inverse H&S that breaks out upwards.

Could Be a Triangle

Could Be a Triangle, But Could Still Morph into Something Else

Could Be a Triangle, But Could Still Morph into Something Else

ES could be forming a triangle, but it could still morph into a megaphone or an inverse H&S or an H&S.

If it plays out as a triangle, it’s bearish, with high odds of downward breakout.

There’s a larger head and shoulders on ES, and the general rule is that a megaphone right shoulder is bullish, but a triangle right shoulder is bearish.