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Fra Zerohedge:

The S&P500 is up 54% over 102 trading sessions – its strongest rally in history over that period – inching closer to the record high, leaving investors wondering if the current stock-market setup will either be a double-top or an upside breakout. 

With the main equity index flirting with record highs, Reuters’ April Joyner points out Monday morning the 5 day average of CBOE’s equity put/call (P/C) ratio suggests “whether it [S&P500] forms a near-perfect double-top or makes marginal new highs – this measure appears to be suggesting the market may soon be dealt a hand of instability.”

As the S&P 500 flirts with its February record closing and intraday highs at 3,386.15 and 3,393.52, a contrarian measure of sentiment based on the CBOE equity put/call (P/C) ratio appears to be doubling down on a bearish setup. 

Indeed, the 5-day moving average (DMA) of the P/C ratio, with a current reading of 0.492, is suggesting from a contrarian perspective an overly bullish or especially complacent market, vulnerable to a reversal.

Since late 2018, sub-0.60 readings in this measure have coincided with significant S&P 500 highs. Indeed, most recently, in early June, after this measure fell to a two-decade low at 0.402, the SPX promptly slid more than 8% in just five trading days. 

That said, ahead of the two sharpest SPX declines, in late 2018 and early 2020, the 5-DMA of the P/C ratio made a higher low against a higher SPX closing high.

After its bottom in early June, the measure formed a higher trough in mid-July, and it now appears to have formed a second higher low this month. Meanwhile, the SPX has continued to advance. 

Thus, as the benchmark index tests its February highs – whether it forms a near-perfect double-top or makes marginal new highs – this measure appears to be suggesting the market may soon be dealt a hand of instability. –Joyne