Forget the News. The Options Market Is Telling a Very Different Story

NYSE Trader

John Magee, who co-authored the book Technical Analysis of Stock Trends, used to say that to be a good technical analyst, you should sit in a room with no windows and no newspapers. Magee, who passed away in the late 1980s, probably would have said in today’s world, no screens, just charts!

I thought of this on Tuesday, as everyone seemed to sit around debating if the war would escalate after the self-imposed deadline on Tuesday evening. Then I thought of the late great Art Cashin, a NYSE Floor Trader, who used to say (I’m paraphrasing) ‘never bet on the end of the world because there will be no one left to pay you’.

As I have noted for the last month or so, there has been an awful lot of hedging going on, but this week I have noticed something new and different. The total put/call ratio’s ten-day moving average seems to hang up at lofty levels. It has not come close to April 2025’s surge, but it is getting up there. Yet it has refused to push down during these last five trading days.

Now let’s take a look at the ETF put/call ratio’s 21-day moving average. We looked at this last week, prior to my time off, and I showed how it had soared, noting that I thought it meant folks were very well hedged up. Since then, we’ve seen this rise even further. The last three trading days have seen the daily reading hovering in the 1.5 area. So, when it comes to ETFs, folks are very well hedged.

While this can be any ETF, I tend to think when it gets like this, we’re probably talking about a lot of SPY, QQQ, and IWM puts traded.

But now look at the equity-only put/call ratio’s ten-day moving average. It has collapsed since the rally began. It too was ‘up there’ last week, but since then the moving average has come down from just shy of .73 to .60. That’s a plunge!

So, are folks loaded up with ‘index’ puts but individual stocks find them buying calls? Or at least not buying puts? It sure seems that way. And that’s probably why the market is so lethargic, like a tug of war.

Yesterday, I noted that I thought the market could pull back or get shaken up a bit in the coming days, but then I thought it would rally again. I still feel the same way. You can see the Overbought/Oversold Oscillator has dipped a bit after Tuesday’s action. The math still says that we are not yet overbought. Right now, I expect us to be short-term overbought early next week. And with the major indexes up five straight days already, that makes some sense.