Stock market correction sparks pessimism

The stock market is like a video game for many people providing them with great entertainment until they start losing, repeatedly. With a serious correction unfolding, how a portfolio is handled can make a difference that lasts for years. Here's something you can use to build your knowledge and skill to manage the unfolding of corrections in the stock market.

The chart below is not your heart rate monitor but it could be during moments of stock market anxiety. The put/call ratio is the relative volume of the purchases of equity puts to calls in the U.S. stock market. It can be a useful timing tool as spikes reveal extreme pessimism coinciding with declines in the stock market itself.

Notice how the put/call ratio is currently at .76. It's nowhere near the spike of .88 in early February during the stock market's one week "flash crash". But even then that level isn't as high as other times not only in the last five years, shown in this chart here, but throughout history.

Historically, the put/call ratio spikes to over 1.00 and typically 1.20 before stocks actually bottom out. The last time it was this high was December 28th 2015 well before the February 8th 2016 low.