Is the Market Due for a Deeper Reversion? Trends Don't Lie

investing.com:

Stocks faced a few hurdles in August, but some would argue that it came at an opportune moment.

As this year's bull run surged into overbought territory, the likelihood of a bigger downturn appeared significant at the start of the month. This trend was further compounded by seasonal vulnerabilities and the convergence of various macroeconomic factors.

However, the reassuring news now is that we shouldn't jump to the conclusion that this marks the start of a bear market. Instead, this seems like a 'normal' correction, where stocks are simply taking a breather.

Let's also not forget the impressive performances of the top three indices since the beginning of the year:

But where does that leave us for September?

Looking at the Put vs. Call equity ratio, we can observe that it reached its highest level in late 2022 to early 2023, indicating the market's readiness for potential declines. However, in recent months, it has exhibited a predominantly sideways-bearish trend, with values rarely exceeding 1. This implies that the volume of put options outweighs that of call options. Interestingly, in the last month, it has come much closer to this «threshold,» hinting at the emergence of a bullish trend.

In essence, what we're witnessing can be considered a correction, albeit a fairly typical one. A 3-4% decline in several major indices (with the exception of the Hang Seng) shouldn't disrupt our anticipated trajectory or shake investor confidence. Nevertheless, many may be contemplating whether this signals the start of a substantial downward movement in the equity markets.

The truth is, we cannot definitively determine this outcome unless specific psychological thresholds are breached, and we gather different inputs from various