Investors are currently taking a break following a recent surge to record highs. Wolfe Research has noted that the five-day moving average on the S&P 500 put-to-call ratio, which measures the relative number of put options to call options purchased, has decreased to just above 0.6, indicating a sell signal. The firm commented that this pattern signifies intense buying during periods of fear and selling during extreme complacency and bullishness. Previous instances of this signal have accurately predicted short-term peaks, with subsequent market drawdowns of 9%, 10%, 13%, and 21%.
This indicator surfaces as the S&P 500 reaches all-time highs, enhanced by a shift in Federal Reserve policy. Earlier this month, the Federal Reserve reduced interest rates by half a percentage point, marking the first policy easing in over four years. Wall Street anticipates additional rate cuts in the near future.
Another sign of market complacency is the VIX, or Cboe Volatility Index, which is currently trading at its lowest levels for September, near 15. Earlier in the month, the VIX had spiked above 23 due to concerns about the U.S. economy affecting market sentiment.
Dan Wantrobski, a technical strategist at Janney Montgomery Scott, also observed that stocks are currently overbought in the short term. Wantrobski noted that a correction expected earlier in September was reversed on September 11, resulting in a rapid increase in risk assets. He believes this will delay a more significant market correction for now, though markets remain vulnerable to external shocks in the current environment.
In other Wall Street news, Morgan Stanley has upgraded Wynn Resorts from ‘equal weight’ to ‘overweight.’ The firm believes that Wynn’s ongoing investments, its proximity to recently added attractions, and its high-end brand will support more resilient fundamentals compared to the broader market.