Note: Helene Meisler will be taking off a few days. Her next column will appear Tuesday, April 17.
I was asked why I thought the put-call ratio had not soared in the recent selloff, and I have a theory -- I'm not sure it can be proven directly, but I will share with you. I believe that, as long as the Apple (AAPL)-Priceline (PCLN) combo had kept going up, folks had not feared a decline in the market.
In my view, this pair had become its own index. I have noted before that folks seemed to be playing weekly options in Apple as if this were the only game in town. Then there was the phenomenon of the analysts on the Street, one after another, coming out with "can you top this?" $1,000 targets on the stock.
Markets evolve. After all, there was a time back in the early 1990s when traders traded S&P 500 futures. Then folks switched to the SPDR S&P 500 (SPY) and the other SPDR funds when these came along. But they didn't get enough action trading these, so they started traded the E-minis. All of those evolutions made sense.
But in the last several weeks, no one talked about trading the SPDR funds or the E-minis. They only traded Apple. At that, they were trading the options on the stock. That, folks, is not evolution in trading. That is narrowness, and one stock becoming the only game in town.
Priceline did not garner the same attention as Apple had until just recently, but the stock was heading in that direction, especially with all the upgrades and the love fests in the past week. To me, as long as Apple and Priceline did not decline, traders were not nervous. They didn't own anything else, so what did it matter that oils and materials were down 20% to 30% in a few weeks? Why would it make them bearish if the two stocks they cared about most were hanging in there?
But that changed on Wednesday. On Wednesday the pair went red while the indices were up almost 1% across the board. What did the put-call ratio do? It closed at 109%, the highest reading since March 22, a day the S&P lost 10 points.
I am reminded of those old Road Runner cartoons in which Wyle Coyote runs off the cliff and hangs in mid-air before realizing he has no floor underneath him. It will now be a scramble to see if Apple-Priceline can find a branch to cling to, as Apple is currently sitting right on a short-term uptrend line.
As for Wednesday's pathetic oversold rally, well, that's what we get when there is no panic and no positive divergences. The most constructive thing the S&P can do is to make a lower low than it did Tuesday -- one that is accompanied by panic and fewer stocks at new lows. If the market can't do that, then it's just an oversold rally.
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