Commentary--Lawrence McMillan, received 9/27/00...
>>>Currently, a massive amount of put options are being bought by bearish investors as the market suffers through a period of nasty, declining days. This put buying has accelerated simultaneously with the decline of the market.
Thus, as the market declines, put buyers increase their activity until they're all loaded to the gills right at the market bottom (that's how contrarian theory is supposed to work, anyhow).
The last two times that the equity-only ratio rose to levels near the current level resulted in good buy signals. They occurred last October, 1999, and the other was in May-June of this year. Both led to good rallies.
One thing to be aware of at this time is that the buy signal from the put-call ratio does not occur until the put buying peaks and begins to turn lower. That hasn't happened yet. In fact, if the current market decline accelerates – as it is wont to do in October – it might not happen for a couple of weeks.
So, at the current time, the best that we can conclude is that we are nearing a buy signal, but it hasn't arrived yet.
In fact, as it turns out, October – despite its nasty reputation for crashes – is actually the month when the market usually bottoms. From the put-call ratios, it looks like that will hold true once again this year.<<< |
