Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options. HOMEPAGE

BofA: We See 5 Troubling Signs Of Complacency In The Stock Market

flame spinner stunt fire dangerous risky
Flickr/Galdo Trouchky

Two weeks ago, the S&P 500 closed at an all-time high of 1,709. And since then, it has trended lower.

Advertisement

It's trading at just above 1,650 today.

In a new note to clients, Bank of America Merrill Lynch's Stephen Suttmeier warns, "Market complacency suggests deeper downside risk."

"The S&P 500 completed a 1-month top last Thursday and quickly tested support at 1654-1650," he wrote. "However, we believe the risk is that sellers are not exhausted as several indicators point to complacency and not the near-term fear that often accompanies market lows. First, NYSE volume remains lackluster on this decline and is not at panic levels. Second, the drop from the early August peak has not triggered any 90% down days. Third, daily ARMS (TRIN) remains complacent and below the 2.0 readings that would indicate near-term fear. Finally, the 5-day Put/Call ratio (page 7) is coming off the complacency levels last seen in September 2012."

Below is Suttmeier's chart of the Put/Call ratio. Puts are options contracts that protect the put buyer from falling prices.  Calls essentially do the opposite.   When the ratio falls, complacency is theoretically on the rise.

Advertisement

"The 5-day CBOE Total Put/Call ratio points to complacency and is bottoming off the lowest level since mid-September 2012," wrote Suttmeier. "This is a negative sign."

put call
Bank Of America Merrill Lynch
Volatility
Advertisement
Close icon Two crossed lines that form an 'X'. It indicates a way to close an interaction, or dismiss a notification.

Jump to

  1. Main content
  2. Search
  3. Account