” The warning lights are flashing down at quality control. Somebody threw a spanner and they threw it in the hole.” Lyrics from the 1982 song ‘ Industrial Disease’ by Dire Straights.
I am reminded of the somewhat famous Dire Straights song because several key warning lights remain flashing. On their own, they’re not a slam dunk. But combine them, and add fundamental data, and the result speaks volumes. Yes, they can sound an alarm for quite a while (the longest being 9 months in 2007 — but look what happened after that).
When Sr executives with publicly traded companies want to reduce their exposure to stock market losses without selling their company stock (that would make the company stock look bad), they buy put options on the stock market. The OEX put / call ratio tracks this. The warning threshold is 140 (red line below). Prior to previous stock market collapses (year 2000 peak, year 2007 peak) this indicator flashed a warning sign. It has been since November and is currently the largest warning sign ever.
Another indicator is the Advisor Sentiment indicator. When the ratio of Bulls/ Bears gets to nosebleed levels like it is now, a correction is imminent.
In order to complete this, I would like to see the weekly buying climax peak sometime this month or next. That would require the US stock market to climb another 3-4%. In the month/ weeks leading up to the climax, the reading is usually very low (like now — 43). If we see this reading spike over 600 (preferably over 1000 like it did in late April last year), we’ll have a strong case for the beginning of a major collapse within days or weeks if the other indicators remain redlining as they are now. Until that happens, any near term corrections are merely blips on the march up. Either way, US equity markets are exhibiting the same signs they did prior to the previous 47% & 57% drops.
