Does a very low put/call ratio indicate a market top?
Some psychological indicators do work on the flip side. The equity put/call volume ratio sank to 0.36 on March 10, 2000, when the market topped. It was one of the ratio’s lowest readings in years. A 0.36 ratio means for every 36 bearish puts traded, 100 bullish calls changed hands. This means the market was extremely bullish. Also in March 2000, the NYSE short interest ratio, another sentiment indicator, hit an eight-year low. The sharp slowdown in short selling activity also indicated that most investors were bullish. This extreme optimism ultimately killed the bull market. Still, you should always treat these as secondary market gauges. If you suspect a market is at or near its top, look for distribution days, or when a major stock index falls on heavier volume than the previous day. A string of four or five distributions within a week or two implies that institutions are selling stock heavily. Without their buying power, stocks drop sharply. Also look for days of churning: when an i
