But all market action is not bullish. For the past four months, and since June 11, our CALL/Put Dollar Value Flow Line (CPFL) has been moving net lower. In fact, the indicator reached a new short to intermediate-term low last Thursday and its lowest level since last February when the S&P 500 was quoted a touch below 1500. CPFL is also now below an uptrend line stretching back to October 2011, a point coincident with important lows made following corrective action begun in May 2011 that resulted in the worst pullback of this bull market. The fact that CPFL stayed in synch with the broad market from October 2011 to June 11, 2013 and then diverged negatively is important. What that negative disparity is suggesting is that despite higher highs over the past few months, options players have been buying more Puts on a Dollar Value basis than Calls, even as the major indexes have worked higher.
Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)
Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)
There is also another concern with recent CPFL action. While the Weekly CPFL Ratio remains “Oversold,” the indicator has been in negative territory (below 1.00) since the week ending August 16. Although “Oversold” conditions can be suggestive of a buying opportunity, and while index pricing is generally higher now relative to August quotes in all indexes except the Dow 30, continuing negativity by the Weekly CPFL Ratio could be bearish. The last time such action developed was in late July 2007 just before the first down leg of the 2008-2009 bear market and in May 2011 just before the worst correction of the current bull market.
Last, Cumulative Volume (CV) has kept up with cash index pricing since last November. But CV in all of the key futures contracts for the S&P, Dow, and COMPX peaked into the May short-term highs and has not revisited those levels since then. It seems the folks playing the futures markets, as with the options crowd, have also lost their enthusiasm for higher pricing over the past few months.