How These Measures Look Right Now

It’s one way of looking at the stock market that doesn’t require a deep understanding of the ways of the Federal Reserve or of assessing what the quarterly earnings of a company MIGHT be. These measures indicate how far away the markets could be from “normal” based on a chart history.

Even though some of these are showing extreme readings already, it doesn’t mean that they can’t get more extreme. Stock markets are capable of extraordinary runs. Nonetheless, it’s helpful to take in and consider just how far stocks have travelled since they hit the October lows — and how much energy has been spent.

Take a look at the world famous volatility index:

This is an extreme reading because it hasn’t been this low for the duration of the chart, an 8-month look. “No fear” is the message of the pattern as investors have given up on the idea that any serious volatility is likely under the current conditions.

It’s an uncomfortable feeling for contrarians who’ve seen this before and remember the type of markets that can take the volatility index suddenly much higher.

Here’s the weekly chart:

You can see that the index is quite capable of going lower: it was down to 15 in mid-2021 and slightly lower than that before the March, 2020 pandemic scare. The volatility seen during that period is what this index is capable of — hardly anyone thinks about an 85 reading anymore but it has happened. The point is: we’re down there at the very low end of things, a general indication of too much comfort.

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The CBOE put/call index (NYSE: $CPC) is the ratio derived from dividing the number of puts purchased over the number of calls purchased. Puts are bets that the market will go down and calls are bets that it will go up. When the put/call ratio is very low, it means options traders are quite bullish.

Here’s what the daily chart looks like:

The index got down to an extreme .80 reading this week and then bounced back with Friday’s stock market sell-off. Even so, a .91 is down there in the unusually low end of the range, especially when you consider the late December, 2022 high of up above 1.90.

The NASDAQ Composite “Bullish Percent” Index (NYSE: $BPCOMPQ) reads the number of stocks on the NASDAQ Composite now trading with bullish point-and-figure chart patterns. Stockcharts.com explains the concept.

Here’s how it looks:

It’s now at the highest level on the chart, a reading that goes back to May, 2022. Note the unstoppable quality of the upward movement since the beginning of this year. The relative strength indicator (RSI, below the basic chart) is now up there in the “overbought” territory, for what it’s worth.

None of this means stocks can’t go higher — they can. These are indicators showing extreme levels and, as stated, things can always become more extreme when it comes to markets and stocks.

Not investment advice. For educational purposes only.