Options Market Signals Major Mood Shift: 'Bad Sign' For Stocks, Warns Analyst

A foreboding indicator emerges for Wall Street, as a closely-watched market sentiment barometer shifts toward the negative. The options market, often viewed as a window into investor sentiment, has illuminated a bearish signal not witnessed for nearly four months.

The focal point of concern centers around the CBOE Put/Call ratio, a metric revered for its insights into market sentiment.

Representing the proportion between purchased put options and call options on any given day, this ratio has now surged above the critical 1 level benchmark, climbing to the highest levels since the end of April 2023.

Chart: CBOE Put/Call Ratio Breaks Above 1 Mark, Indicating A Bearish Setup

What Does A Put/Call Ratio Above 1 Mean?

This upward trend in the put-call ratio, particularly when surpassing the 1 threshold, points to a significant development.

Traders are now gravitating towards puts over calls, signaling an increasing demand for protection and a heightened inclination to speculate on possible market declines.

The implications are clear – bearish sentiment is tightening its grip on the market, prompting investors to brace for potential downward moves or safeguard their portfolios against impending sell-offs.

Read also: Playing the Playing Field: Using the Put/Call Ratio to Grab Market Gains

A Bad Sign For Stocks

“A bad sign if stocks can’t hold here,” said Michael Hartnett, the chief investment strategist at Bank of America.

In a recent edition of his famed “The Flow Show,” the analyst warned that the put-call ratio is now “tactically supportive” for a risk off in markets.

A retest of the pivotal 4,200 level for the S&P 500 Index now appears to be within the realm of possibility, the expert said.

The SPDR S&P 500 ETF Trust SPY is on track to close its third straight week of losses, down over 5% since the start of the month.

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