the equity put call ratio, which gives a better reading on investor sentiment, than the index put call ratio's, worked
it's way up to 1.00 on Friday, this coupled with a Friday morning TRIN reading of 4.30. A scan of the 5 Day TRIN,
10 Day, 21 Day, 30 day and 55 day TRIN are all showing very high readings, which indicates that the selling
has really been pervasive, but also that a sentiment oversold situation similar to April will once again appear,
over the next number of weeks. We could either see some more stop and start grinding into the next low that
takes several weeks....... or even into Oct, or a more intensified bombing out process that comes a bit quicker
timewise..... Since Friday was an options expiration day, it will be interesting to see what the P/C numbers look
like early this week.
The VIX has worked it's way up to it's 200 dma at 28, where it's topped 3 times since June and in fact he 28 level
has been a key pivot area for the VIX since Feb of this year. We saw the VIX stay pretty consistently above 28
during the relentless shelling of stocks we saw during Feb and March into the April 4th Nasd Low.
Back in 1997 and 1998, when we would see real nice rounds of selling, the VIX was able to more easily vault up
into the 40's or even 50's and those environments of panicky selling gave us quicker, more piercing bottoms in
price and in Fear. These Days..... it's the Withering Bear working through his machinations, at
a more languid pace.
But to come back to the point I would think we would see the VIX break out above it's 200 dma and vault into the
upper 30's or so in the next few weeks.
....on the equity put call.............
The Chicago Board Option Exchange's equity put-call ratio shot past 1.00 on Friday. This ratio is a contrarian sentiment indicator; if too many are bullish, the smart approach is to be bearish, and vice versa. The indicator is considered to be sending a bullish signal if it is between 0.75 and 1, neutral from 0.4 to 0.75, and bearish if it is below 0.40.
So why did the put-call ratio pop? Puts on tech stocks were the most actively traded during Friday's expiration. In Intel, "investors seemed like they did not want this stock put to them. They closed out their option positions, and they aren't that bullish," says Michael Schwartz, CIBC World Markets' chief option strategist.
Kyle Rosen, who runs the Rosen Capital Management hedge fund, says the ratio popped on heavy put buying. Until Friday, "people expected the trading range to continue, and most had been sellers of call options" to rake in premium.
Stop selling calls, Rosen urges. "We took out some of the July lows, and investors flocked to put options for protection. That means the end of this decline is closer." Instead of buying stock outright or shorter-dated options, which could be slammed in the near term, he recommends investors purchase longer-dated at-the-money Standard & Poor's 500 index calls dated at least six months out. "Calls are very cheap here, which is unusual after such a decline, when prices for calls usually go through the roof." |
