May's Dollar/Commodities Trend Weakens

A big trend weakens, finally. Remember the game: dollar up, euro down, commodities weaker, commodity stocks weaker. That's been a trend for the better part of May. Today, that trend is weaker. Dollar is slightly stronger, but commodities and commodity stocks are strong.

Note I said the trend is weaker, it has not broken down. Late morning, the dollar is weakening, and stocks as a group are moving up.

Traders seek protection, and that's good. Several traders noted yesterday that the CBOE's put/call ratio was unusually high, over 1.1. That means 11 puts for every 10 calls. In other words, traders were buying more protection.

That means they're nervous, and that's good, because high levels of put/calls are often associated with at least short-term market tops.

Birinyi Associates, who spend much time researching this type of arcania, confirmed as much in a note this morning. They note that this was the sixth period since the beginning of the bull market (early 2009) that the level of puts vs calls has risen to 1.15 or higher.

Four of the previous five occurrences signaled the end of a minor pullback, Birinyi said. One instance marked the beginning of a correction (5/5/10). The S&P on average has been up 2.3 percent one month later.

You canfollow the put/call ratio here (pathetic, I know, but that's what we do). Or you can just listen to us.

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