Market Overbought, Jay Shartsis of Thestreet.com
Lately, the most accurate indicator I look at has been the mirror-image OEX put/call ratio. Here is how the indicator works: It is very bullish when out-of-the-money OEX puts are priced more than 10 times the out-of-the-money OEX calls. The puts were as much as 18 to 1 about two weeks ago, which was very bullish. They were still 5 to 1 earlier this week. That has now changed. As I write this on Wednesday afternoon, the OEX is 576 and the November 545 put is bid 2.10, and its counterpart, the November 605 call, is bid 0.90. This has to be rated as bearish. In the past, I have seen the call priced more than the put, which is quite bearish -- but that situation is very rare, and I wouldn't wait for it.
During the rally Wednesday, the OEX November 590 call was also unable to move up, even when the S&P December future was up about five points. This nonconfirmation is unusual; the OEX calls normally move up if their pricing mechanism, the S&P futures, moves up. When they don't it is often a warning sign of an imminent selloff. This, by the way, is a very short-term indicator.
The Nasdaq market has now recorded a five-day TRIN or Arms Index of 4.81, and that's very overbought. There have also been quite a few episodes of "plus ticks" above 1000 on the NYSE; a high of + 1231 was seen on Tuesday. That reading is associated with a sharply overbought condition |
