Here's the camp I think most investors are in right now. They are betting on a correction or rest in the market, and they are betting any such move will be temporary.
The evidence I have for this comes in the form the various put-call ratios, because two of them read at quite extreme levels Friday. The put-call ratio of the CBOE Volatility Index (VIX) slipped under 20%, which is not very common. The reason it's so low is that many folks are betting on a higher VIX -- those who say the market needs a rest or a correction. The current reading, at 17%, is the lowest since June 28, although two readings have since come in at 19%. On the chart below, I have indicated with black arrows when these sub-20% readings arrived.
The first thing to notice is that B and C look very similar, as they arrived after the S&P 500 had been sliding for several days, if not more. In both cases the S&P had enjoyed at least a 50-point rally almost immediately following the low reading, thus invalidating those who had bet on a higher VIX.
Point A came after a short-term oversold rally within a downtrend. While the VIX-call buyers were correct, three days later we had seen capitulation, and the market had bottomed.
Point D also came after a few down weeks in the market, coming just prior to the U.S. presidential election. The S&P rallied, although not very strongly, and then it fell hard.
The red arrows point to times when the index put-call ratio sank under 65% -- as compared with Friday's reading, which was 55%. In these instances, folks are primarily betting on a higher move in the index. The two red arrows, marked A and B, indicate the market pullback that proved all those call-buyers wrong in the near term.
The area marked C is most curious of all -- because it did not arrive after a rally but, rather, after a decline. What's more, it arrived on the same exact day that the VIX put-call ratio sank under 20%.
Notice the short-term pop and subsequent decline here. Clearly the market is not in the same place, now, as it had been during any of these other points. However, consider that these two conflicting readings appeared together in late October. What this tells me is that, if we see a pop Monday, it would line up with all my other indicators that show an overbought market and suggest -- in my view -- that we'll see some downside for the remainder of the week.
Elsewhere, there has been much chatter on the yen-dollar currency pair, but I have seen very little discussion on the euro-yen cross. This longer-term chart measures to around the 120-to-122 area, so it is possible the currency pair could be at or near a short-term top, as well. A Monday bounce above 120 could do it.