• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

The Equity Put/Call Ratio Hit a Six-Year Low: Should We Be Concerned?

A look at what's happened in the market six times when this indicator has been lower than 40%.
By HELENE MEISLER
Jun 04, 2020 | 09:30 AM EDT

One market indicator I frequently look at on Real Money is the equity put/call ratio. Wednesday's equity put/call ratio sunk to 40%, its lowest level in six years.

What should we make of this?

I looked back and found six times when readings for this indicator were lower than 40%. Let's take a look at these instances because they are quite interesting.

December 2007

First, with no chart because I am certain we all know how this story ended, there was the reading at options expiration in December 2007. I remember it well because I rationalized it as being a year-end expiration reading. We know how that turned out since the S&P 500 made its high two months prior and did not see that high again until after the bear market.

Lesson: Never rationalize an indicator.

August 2009

The next instance we saw the equity put/call ratio lower than 40% was a few months after the March 2009 low, in late August. All we got then was a quick 5% correction.

2010

There were two such readings in 2010.

The first was early April. You can see in the chart, below, we rallied, or at least didn't go down much for a month. Then we got the Flash Crash.

The other reading arrived in late August after the market was already down quite a bit. The market plunged 3-4% and made a low. Folks might remember this coincided with Fed Chair Ben Bernanke's Jackson Hole QE2 speech.

2011

The years 2011 and 2014 have much in common in what transpired after their low readings.

In 2011, the low reading arrived in January and led to a mere 2% correction and a 5% rally thereafter. But step back and note something else: not only did the 6% rally lead to a 7% decline rather quickly but it was the beginning of a giant sideways period that led to a top and massive drop that summer as the U.S. debt was downgraded.

2014

In 2014, we got a few days of pullback but mostly we were in a chopfest for the next six weeks. The market dropped, rallied and then plunged into what folks might remember as the Ebola Scare in October that year.

Bottom Line

If you are looking for something that provides instant gratification you may or may not be thrilled with these statistics, depending on your time frame.

In the big picture, out of these six readings, four of them were part of a topping process. One gave you an immediate plunge and nice rebound (2010) and one gave you a mild correction that then went on to rally for months (2009). It's a matter of whether you think now is like August 2009, August 2010 or some other time.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Meisler had no positions in any securities mentioned.

TAGS: Investing | Markets | Put Call | Stocks | Technical Analysis | Trading

More from Stocks

3 High-Yield Dividend Tech Stocks for Income Investors

Bob Ciura
Jan 30, 2023 2:35 PM EST

Now could be a very good time to capitalize on sustainable income streams from a sector where dividend income is scarce.

Checking on AMD's Stock Charts Ahead of Tuesday's Earnings

Bruce Kamich
Jan 30, 2023 2:10 PM EST

Here's what to avoid for now.

Is This Mid-Cap Oil Stock Ready to Capture Its 'Big Winner' Potential?

Bruce Kamich
Jan 30, 2023 1:29 PM EST

Here's our technical strategy for trading oil producer Denbury.

Don't Fight the Fed? What About When the Fed Is Fighting Its Own Past?

Peter Tchir
Jan 30, 2023 1:00 PM EST

The biggest risk to markets in the coming weeks is the realization that the Fed has already gone far too far, and the economy is rolling over.

With Lucid Motors Buyout Talk, Here's What the Charts Indicate

Bruce Kamich
Jan 30, 2023 12:30 PM EST

Trying to trade buyout rumors can be difficult.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:27 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • 11:03 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend On Real Money

    It's time to start using this power to build great...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login