SP-500 vs. 10-day MA of the put/call ratio… 03/09/08

Spikes in the put/call indicate fear has quickly set in, but an elevated 10-day moving average of the put/call suggests fear hasn’t just spiked, but instead has been growing steadily. The last two times the 10-day got to the current level, the market bounced (notice the 10-day tops in Nov and Jan correspond nicely with the SPX bottoms). This tells us initiating new shorts right now probably isn’t a good idea unless you are ready to cover quickly if the market turns around. The risk/reward just isn’t as favorable as it was just a week or so ago.