Generally, a lower reading (0.6) of the ratio reflects a bullish sentiment among investors as they buy more calls, anticipating an uptrend.
For stronger uptrends, there is a negative effect on returns, suggesting that profit taking occurs as the magnitude of the uptrend increases.
As this occurred in an uptrend the selling pressure is seen as a potential reversal sign.
The opposite occurring at the top of an uptrend is called an evening star.
Initially, value-based traders would buy the undervalued asset creating an uptrend, which would then attract the momentum traders and a bubble would be created.
When this pattern is found in an uptrend, it is considered a reversal pattern, as the contraction of the range indicates that the uptrend is losing strength.
