Complacency

“THE STRIKING PRICE” is a weekly feature in Barron’s magazine. It has a few charts that I find informative. Here are last week’s charts:

ON-CD549_bCBOE0_NS_20170526193030

from the Barron’s article:

http://www.barrons.com/articles/its-time-for-investors-to-pounce-on-banks-1495858728

Here’s why I find this interesting. The top right chart (EQUITY ONLY PUT-CALL RATIO) is showing the lowest value I have seen in recent years. People generally buy PUT options to protect against rapid stock market declines. This is a 21-day weighted PUT-CALL ratio, as explained here, which is to say that, in the last 3 weeks, investors have reckoned that the chance of a crash is pretty low. Low volatility has also made the news is recent weeks (see the top left chart above).

Yet, investors are not bullish. In fact, the AAII sentiment survey shows that very few investors (just 27%) expect a rise in the overall stock market in the next 6 months. Rather, investors feel “neutral”.

I sense complacency, which is a sign that there’s probably an unpleasant surprise around the corner.

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