PUT/CALL ratio update - i am unable to access the homestead site, so today's update appears here:
CBOE total: 0,53
Ind. Equ.: 0,44
OEX: 1,42
SPX: 0,98
DJX: 0,215
VIX: 20,21
PVI(CBOE): 1,18
PVI(OEX): 1,13
Ind.equ. call vol.: 475543(-248,802) put vol.: 207,967(-6,922)
OEX call vol.: 35,080(-28,561) put vol.: 49,812(-29,021)
SPX call vol.: 35,273(-6,786) put vol.: 34,565(-4,251)
OEX open int.: calls: 174,284(+11,445) puts: 238,019(+29,006)
The slight pullback evident before the market launched it's late-day rally yesterday served to inject a note of caution into options trading activity. Demand for ind.equ. calls fell sharply, resulting in a more palatable ind.equ. and CBOE total ratio. However, the 10-dma of the CBOE total ratio now rests at 0,50 , not far off it's recent record lows, and once again some speculative buying of DJX calls could be observed, pushing the DJX p/c ratio to a record one-day low of 0,215. A more encouraging development is the continued sharp rise in OEX put open interest, which should serve to limit declines ahead of the july expiration. Likewise, there was a surprising decline in the percentage of bullish investment advisors, in spite of last week's rally. Declining bullishness in the face of superior technical performance by the indices is generally a good sign, indicating that the rally may have further to go. I have to point out though, that it is normal for the percentage of bullish advisors in the I.I. poll to peak before the market does. They usually reverse course once again before an intermediate term peak is reached. 1999 has been a highly unusual year so far in terms of the various sentiment measures, inasmuch as most of them have hovered near extremes for most of the year and the market has managed to rally sharply in spite of this. The conclusion that can be drawn from this is that the market has indeed entered a speculative blow-off stage that will ultimately result in a sharp and painful decline. This is because the extremely low p/c ratio readings and high levels of bullishness according to the polls have a sort of cumulative effect – the longer they persist, the more pressure for the market results once a more than cursory decline starts, as the majority of money on the sidelines will have been drawn into the market by the time it peaks, leaving no cushion to mitigate a decline. In addition to this, 1999 has seen an incredible explosion of margin debt, setting fresh records by the month. Foreign funds have also been drawn into the market at a never before seen pace. Essentially, foreigners dumped their t-bond holdings in favor of equities, and the month of May saw a record inflow of $15 bn. into the stock market from foreign sources. While the charts suggest that the rally could carry the market a lot higher still, we have to keep in mind that an as-of-yet unforeseeable exogenous event could easily upset this happy state of affairs. Considering the vast amount of money that has already entered the market and the fact that the market is at it's most overvalued ever in terms of the Fed's fair value model, we can only hope that no exogenous shock materializes. In the meantime it looks as though pullbacks should be regarded as buying opportunities, but every long position should be equipped with a tight stop – we are priced for perfection after all.
Regards,
hb |
