2CS

My favorite and simplest sentiment measure of the US stock market is the 2CS. Take each day's CBOE put/call ratio and multiply by each day's VIX or VXO (I have used the VXO since 1996). Sum the last five days of the daily product of VXO times P/C. When that five day total or 2CS gets under 70 we can start to wonder about the possibility an intermediate term top somewhere ahead. Sometimes the market will stall or go sideways a bit and relieve this condition, and then go higher again. But sometimes 2CS will continue to fall as the market moves up and get below 60. 2CS below 60 is almost always indicative of a significant decline within a week or two.

As of 15:00 Eastern Time it appears that the 2CS will close below 60 for the first time since February 14 2011. The market stayed stubbornly near the high for three weeks before tumbling, a little longer than normal, and the market only suffered a 6.4% decline on a closing basis for SPX. Nevertheless I always respect the 2CS under 60.