⚠️ VERY TELLING SIGN!! READ OR PAY THE PRICE 😉Now we see that the SPY has made over 12% drawdown since it major top in 04JAN22. Currently the correction in the Nasdaq Composite reached -19.72% peak to trough while the Russell 2000 came off -21.44%.
This is the largest correction in the general market since the Covid crash in March of 2020.
However, this indicator is a sign that we might not be out of the woods yet. What is telling us that? Well the buying patterns of traders and institutions.
The Put-Call ratio is barely in the neutral level, which suggest that the participants in the markets have not been buying puts (aka equivalent to selling short) just yet. When they do, things can get really ugly. /for the chart we look at 10D SMA of the PCall ratio on the Daily timeframe/
This together with the high VIX should be more than enough to keep you on the sidelines.
REMEMBER CASH IS A POSITION and if you were in our free discord service you would have already been out by 13JAN
PCQ trade ideas
Adrian's Crash DashThis is a set of charts that I use as a dashboard to quickly judge the amount of risk I should be taking.
Here's my checklist for judging how long I should be and if I should BTFD or STFR:
Chart 1 (top most chart, ES1!)
1. Bollinger Bands:
a) Are we in an overbought/oversold situation as judged by the Bollinger Bands?
2. RSI
a) Are we in an overbought/oversold situation as judged by RSI?
3. Trend
a) Is the trend down or up?
b) If the trend is down, wait for a reversal pattern or capitulation.
4. Levels given by AVWAPs
a) In practice I've noticed that AVWAP's may represent potential areas of support or resistance.
5. VIX-ES1! correlation
a) Positive VIX-ES1! correlation is a warning sign and showed up prior to several pullbacks such as 6/11/2020, 9/2/2020, 7/15/2021.
i) I also look at the trend of the VIX, VXN, and RVX.
I focus most on NQ1! & ES1!, but will occasionally look at RTY1!, YM1!, & EMD1!.
Chart 2 (second from top, US30Y)
1. Is the trend down?
a) The bond market seems to price in inflation/deflation faster than equities, and with less noise. Rapidly rising yields is a risk for the duration trade due to the DCF narrative. It is a warning sign that showed up prior to the 2/19/2021 pullback in growth.
I will occasionally look at US10Y.
Chart 3 (bottom, smoothed PCQ)
1. Put/call equity allows me to asses the street's positioning. I have highlighted my green buy zone, and orange and red danger zones.
High put/call shows that the market can climb a wall of worry. Low put/call is indicative of overly aggressive positioning.
Ebullience tends to show up first in the Nasdaq's put/call measures (PCQ.)
I typically iterate through several different versions of put/call ratios and put/call equities:
- PCQ
- PCQE
- PCCE
- PC
- PCC
- PCSPX
