The stock market’s bears finally have broken through and several factors have combined to spark this setback in stock prices.
First, retail investors are losing interest in stocks. Remember the retail frenzy as the Reddit crowd whipped up enthusiasm for meme stocks? Remember how flash mobs drove up selected issues with call-option buying which forced market-makers to hedge by buying the underlying stocks?
That’s mostly gone. In the short run, there was a lot of hand-wringing about the call buying as a sign of excessive speculation. My longer-term view is a rising equity call/put ratio is a sign of bullish momentum and rising call/put ratios were coincidental with equity bull phases. In the past, a decline of the 50-day moving average (dma) of the call/put ratio below the 200-day moving average has signaled pauses in bullish advances in the past.
Bad news from overseas on the pandemic front may have…