I could easily discuss the breadth of Thursday's market, which was flat as a pancake as the Dow Jones Industrial Average (DIA) , S&P 500 ETF (SPY) and the Nasdaq (QQQ) all finished within 10 basis points of flat -- so much so that even net volume was literally zero, with the same number of shares up on the day as down. Or I could point out that the transports held their own even when the market went red.
Or maybe we should discuss the banks considering they took quite a tumble and the rest of the market seemed to shrug. Note that the Bank Index is getting much closer to that support level I highlighted a few days ago. I keep thinking we'll see some panic regarding the banks and there was very little chatter over them. That's surprising.
But what I really want to discuss is the fact that the put/call ratio for the VIX surged. Recall that just a few days ago I discussed the fact that we had two readings for this indicator under 20% just a few days apart. I view one reading under 20% as short-term bullish because it's a heavy bet on a higher VIX (lower stock market), and the contrarian says we should go the other way.
Thursday's put/call ratio for the VIX was 190%. That's rather extreme. In the last four years, we've seen it over 170% six times. There are a few oddities here. Three of those days were similar in trading to Thursday as the market was relatively flat on the day. Three of those days saw big moves -- up or down.
- 8 Reasons Goldman Sachs CEO Has Every Reason to Be Terrified of Stock Market
- It's All Systems Go for These Vicious Bear Markets, Jim Cramer Explains
- Investors Waiting for Disaster?
I will take you through what transpired in the markets after these readings, but the summary is that the upside, if it arrived, was limited and within a few weeks there was a decent correction to the downside.
In 2013, a year somewhat similar to 2017 because we had so few corrections in the market, the high reading arrived in mid-July and after a big up day. The S&P 500 chopped with an upside bias until early August and then gave it all back and more, thus the bet on a lower VIX did not come to pass; we had a higher VIX and a lower market within a month.
In late 2014 and early 2015, there were three such readings very close together. The mid-November reading gave way to a pop in the market and then early December's reading took us all the way down. Mid-January 2015 arrived on a big up day and, as you can see, we round-tripped pretty quickly.
April 2016 saw the S&P 500 come back down without a rally first. In early August 2016, we had a pop, some sideways action and then a big decline.
You can see in each case the VIX was more likely to go up than down, so being a contrarian was proper. Sometimes the decline was mild and sometimes it was more powerful. It remains my view that we should see some chop or downside in the next week or so, therefore I believe this confirms my view. Let's see if the prior action repeats itself.
For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.
This article originally appeared Sept. 8 at 6:00 AM ET on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.
More of What's Trending on TheStreet: