Implications of an Extremely Low Put/Call

One indicator that has received some attention lately is the CBOE Equity Put-Call ratio. Many people believe that very low readings can be a sign of complacency and an impending top. I decided to test this out a little.

Below I look at the 3-day equity p/c ratio compared with the 100-day. To see why I normalize using a long-term moving average, click here. On Tuesday the 3-day average dropped over 25% below the 100 day. This has only happened a handful of times. To get a larger sample size I used a 20% trigger instead.

Based on the above test, the recent extremely low numbers in the CBOE Equity Put/Call ratio don’t appear to be predictive of a selloff. In fact, they could actually be interpreted as a short-term bullish indication.