Today I’d like to show you the stock market’s most important chart because it is flashing a major warning signal.
Before we get to it, I will say it has both nothing and everything to do with the upcoming election, the coronavirus pandemic and the current state of the economy… And it has me deeply concerned.
The stock market of course throws out a lot of false positives and signals we think in the moment are important. Much of the time, you can ignore the signal and do just as well or better.
But when you get caught up in an inevitable correction or even a bear market that sneaks up on you, you’ve likely wondered why you couldn’t get advance warning.
Well, the stock market’s most important chart is sending up warning signals right now…
The chart below shows the current put-call ratio. Many of you are at least familiar with options. If not, a put is an options bet that a stock or index will fall by a certain date. A call is a bet that it will go up.
As traders become more bullish or bearish, they buy calls or puts, respectively. Take a look at the red circle on the far right of the chart.
That red circle is where stock market sentiment is right now. As you can see, there have been only a handful of times over the past 13 years that traders have been as bullish as they are today.
In just over six months, we’ve gone from a period of historic bearishness as the coronavirus pandemic set in back in February… to historic bullishness where optimism reigns. Investors are feeling bulletproof, and that is a dangerous sign — though not foolproof.
With volatility spiking Monday and again Wednesday, I wanted to show you the stock market’s most important chart. How bullish or bearish are you right now heading into one of the most uncertain elections we’ve ever seen?
Check out my short video on what all this means, and then share your thoughts in the comments below.
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