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- Bullish Ain't No Opposite Of Bearish
This is the weekly version of The Prime Wave. The weekly is free for all subscribers, daily updates of the Swingex Index are reserved for paid subscribers only.
THE BIG IDEA
Market tops and market bottoms are not mirror images of each other, and neither is the data that might give us clues about when those situations might appear. The equity put/call ratio is a prime example of that.
The put/call ratio is really a useful tool for gauging the mood of the market. Unlike some other sentiment surveys, the put/call ratio measures what people are actually doing with their money and not just how they feel about things. When people are bullish, they load up on call options. When they are bearish they buy puts, or at least stop buying calls.
However, much like other sentiment data, the put/call ratio is most useful when the numbers reach extremes. Below you see the equity put/call ratio for the last 12 months. Notice those distinct spikes occasionally shooting higher. We like to see the ratio go above 0.9, which has happened five times over the last year. As you see in the bottom panel, those moments often mark a bottom in the market. It may not catch the exact day, but it is close.
But notice also that the same thing does not happen at tops. There are no easily identifiable plunges in the numbers. Unlike the pain associated with a bottom in the market, euphoria is not a sensation we wish to quickly escape from. Unfortunately, it does not last forever, either.
You can capture the bullish vibes coming from the put/call ratio better by taking a 5-day average of the data. Most of the more heavily traded stocks have options on them expiring every Friday, so taking the 5-day average will contain one weekly cycle. This is the purple line in the next chart.
The ratio is now at 0.48, meaning that last week investors bought only 48 put options for every 100 call options. Relatively few people are concerned about a possible fall in the market. This is the most bullish the market has been in over a year!
We were in the ballpark, below 0.5, back on January 24th. It put a stop to the uptrend that had been in place, but the market held firm for another month.
That’s another difference between bullish and bearish sentiment. Periods of extreme bullishness can linger for a while before it starts to matter.
The put/call data is saying the rally after the Tariff Tantrum is probably over and our own Swingex Index is also in negative territory. We’ll see what happens.
SEEN ON THE INTERNETS
The S&P 500 was up all five days last week and is now up 12.8% over the last four weeks. If you were to guess that alot of stocks were probably sitting at their 4-week high, you would be correct. In fact, according to this post on social media from Matt Cerminaro, 58% of the S&P 500 stocks have just simultaneously hit a 4-week high.
According to his analysis, this does not happen often. When 58% or more of the S&P 500 stocks make a 4-week high at the same time, the market has a perfect record of being up a year later. The chart that Cerminaro included in his post is embedded below.
It looks great! But there are two problems with this.
First, it includes only cases that are 58% or more. What about the times the figure was nearly 58%, but not quite? Are the returns impressive for those cases as well? Or do the good results only come when the number is even higher than what it is now?
Second, if you look closely at the dates, you will see that they sometimes come in clusters. Even consecutive days. The last two bars on the chart are for December 13 + 14, 2023. Unsurprisingly, the 1 year forward returns are very similar.
The analysis is still interesting and not necessarily “wrong”. It is just telling us less than what it seems on the surface.
NUMBERS ONLY
4 | Consecutive days that the S&P 500 has gone up, but on lower volume than the previous day. |
- 5.25% | XLV, the ETF representing the health care sector, is down more than 5% this month. The S&P 500 is up more than 7% during the same period. |
10% | The current “baseline” tariff on goods imported into the U.S., which may or may not be significantly increased in the near future depending on something happening, or not. |
SWINGEX INDEX
Swingy says: The index is telling us this rally is looking a little shaky. May be a good time to log off and go play pickleball. | As of market close on 16 May 2025 - 2 |  |
See some historical examples of the Swingex Index in action here.
REWIND
Along with the daily value of the Swingex Index, we sometimes highlight stocks that could do well over the next 3 days to 3 weeks. This is a look back to 2-3 weeks ago to see how they have played out.
We offered two ideas before market open on May 1st.
$MCRI ( ▲ 1.04% ) - There was some under the surface evidence of accumulation in shares of Monarch Casino even though it finished April flat compared to end of March. The shares opened May 1 at $77.51 and are currently $82.78.
$R ( ▲ 1.3% ) - We saw Ryder System as one to give a pass on, or even go short. Man, were we wrong. It opened that day at $138 and never looked back. It is now going for $157.