The market may be getting too comfortable heading into a historically scary month

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Investment Strategy Nouvelles

Stock Markets,S&P 500 Index,Business News

Investors are resting in their laurels after the latest run to record highs.

Wolfe Research pointed out that the five-day moving average on S & P 500 put-to-call ratio — which looks at the number of put options bought relative to call options — fell to just above 0.6, flashing a sell signal. "It is simply buying intense fear and selling extreme complacency and bullishness. The last 4 signals were quite timely in calling for a short-term peak, with drawdowns of 9%, 10%, 13% and 21% soon to follow," the firm wrote.

The Cboe Volatilty Index spiked north of 23 earlier this month, as worries over the U.S. economy weighed on sentiment. Janney Montgomery Scott technical strategist Dan Wantrobski also pointed out that stocks are overbought short term. "The correction we had been looking for earlier in September experienced cycle inversion on 9/11, and since then, we have effectively experienced a 'crash upward' in risk assets," Wantrobski wrote.

 

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