DrBob (or anyone else), "TA" vs. "Psychological factors". This is my first post. Sorry for being a bit long here. But I promise not to do so again - unless I wind up posting only once a year. I am a long-term investor and probably never will be a trader, as such, because I simply don't have the time or inclination. However, TA is important, even for long-term investors. Portfolios have to be rebalanced, investments purchased without chasing, selling is always a problem. Having a feel for the technical aspects of the market is important even if not used on a short-term trading basis. So, here I am, lurking - for the past several months. I must say this is one hell of a great board. There's intelligence here! On other boards one must slip through a lot of slop to find some. Kudo's to everyone here and especially to DrBob.
But a lurker I will remain. I am a neophyte when it comes to TA. I have always relied on the fundamentals and market psychology to find my way around. Which also means I listen to a lot of wisemen (gurus?) and then make up my own mind. Over time I hope to learn a lot by listening to everyone here. But I have a question. How does one relate TA with psychological factors - especially when they seem to diverge? In some ways TA seems to be "effect" while psychological factors appear to be "cause".
More specifically, lately it seems that TA is telling us more and more that the rally under way since late July has some life left while psycological factors seem to indicate otherwise, at least for the short term. Odd-lot short-selling appears to be decreasing while that of NYSE specialists seems to be increasing. Bullish investment advisers are predominating over bearish ones. The recent rally has occurred on low and dimishing volume. On top of that the worst month of the year, September, is fast approaching. If this was all, I would not be overly concerned.
However, the ten-day rolling put/call ratio (Chicago Board) remains horrendous (highly bullish outlook on the part of the speculators). For perspective, an extremely favorable reading would be around 1.00 (put buying equals call buying), an area of caution would be around .67 (1.5 calls bought as compared to puts) and an extremely unfavorable reading would be around .50 (twice as many calls bought as puts) For most of the bull market from late 1991 until mid-1997 the put-call ratio ranged mostly from .80 to .70. Starting in mid-1997, however, the picture changed dramatically when speculation and volatility started to increase. Since then the ratio has, except for 5 months, ranged from .67 down to .45, which, incidentally, was March 2000.
What I find interesting is where the readings closest to 1.00 (10-day moving average) have occurred since mid-1997.
November 1997-- .74
September 1998 -- .87
October 1999 -- .68
May 2000 -- .58
Other readings:
Late July 2000 -- .50 (The start of the latest rally)
Currently -- .50
I really don't like the looks of this so far.
My take on this is that DrBob may prove more correct on his earlier short-term bearish outlook than his more bullish stance recently. A lot of whip-sawing seems to be occurring in TA. Perhaps a look at market psychology itself could help explain a few things. So, what does this all mean? Who knows for sure? One thing I feel we could all hope for (except for short-term traders) is that the baddy month of September does its thing and scare the pure speculators, bring the market down on perhaps higher volume and allow psychology and TA to prepare for a good bull move.
However, if recent TA proves correct and we rally from here right through the end of the year the put-call readings might begin to look like the bottomless pit. Next year might be a rendition of "Look Out Below". January 1973 also saw a presidential inauguration, which, of course, followed the "nifty fifty".
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