The Total Put-Call Ratio Signal Generated (Preview)

By Lawrence G. McMillan

We have written about the Total put-call ratio many times in the past, so I am not going to get too involved with the explanation of the system, but I did want to show a recent chart and summarize the most recent signals.

Simply stated, here is the system (it gives buy signals only).  One calculates the Total put-call ratio by using all stock and index options (but not futures options).  It is rare to see the ratio above 0.90 on a daily basis, for call option trading volume dominates put volume in equity options on most days.  We keep a 21-day average of the Total daily ratios.   When that 21-day MA gets above 0.90, the market is oversold and a buy signal is setting up.

                The buy signal occurs when either:

                                a) The 21-day MA drops back below 0.90, or

                                b) The 21-day MA forms a peak that lasts for 10 days.

                Once the buy signal is in effect in can be stopped out if:

• 1) The 21-day MA falls back below 0.90 after either of the above buy signals, and then rises back above 0.90 again, or
• 2) The 21-day MA exceeds the prior peak from (b) above

Note that if the signal is stopped out by either...

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