On Wednesday we saw another near record day on the CBOE equity put/call ratio, reaching 1.46 which is the highest level since 1997. Just a week prior on Wednesday we saw the same ratio hit 1.3, which was the highest since the Great Financial Crisis in 2008.
Single stock options skew remains heavy toward put premium, meaning a lot more bearish bets and hedges are being put on single stocks lately. It will be interesting if today's monthly OpEx impacts that positioning.
This morning we have $790B of SPX options expiring in the AM, the non-SPX index options are trivial in comparison at just $58B. This is why we watch SPX very, very closely. The chart below really illustrates how it is the center of the options universe.
In the PM settlement we're going to have $405B of single stocks expiring, with a heavy weighting toward put premium. That could give us a little bit of positive pressure toward the end of the day. Especially since we're seeing a reasonably good setup pre-market.
We can see that QQQ vs TLT saw TLT catch up as demand for longer-dated US Treasuries increased recently.
This has helped to put a short-term floor under the NASDAQ, but I do believe we're likely to see higher rates in the weeks and months ahead because of how much debt issuance the US government is engaging in during an environment of falling demand.
Key sectors have rallied off of their lows, such as transports, semis, home builders, and durables. This is an encouraging sign, but it's ultimately likely to be a countertrend rally.
The macro drivers for a durable economic expansion are behind us, and the potential for a deep recession is growing significantly. These bear market rallies may indeed be gifts for raising cash, putting on hedges, and even speculating on short positions.
Until we see a meaningful increase in new highs, as we saw post-COVID crash, it's unlikely that this bear market is over.
Bear markets tend to show us regular patterns of fear and false hope, with the former evidenced by the large drawdowns with significant new lows being registered until there's ultimately a crescendo when much of the entire NYSE is registering new lows in a single day. This happened during the COVID crash and the Great Financial Crisis. Nearly every NYSE issue was down at the same time.
So far we haven't seen that level of fear in the 2022 bear market. The deepest down days we've had edged over 1,100 new lows out of over 2,400 listed issues. I'm still looking for a drawdown like that, and then, eventually, new highs outnumbering new lows for a sustained period. At that point I'll feel more comfortable saying the worst is behind us.