J.T., I tried for quite sometime to use the Index only P/C ratio, and found that it has no predictive values whatsoever, most probably, because indices puts and calls are used mostly by institutions for hedging purposes. To make the point, I have calculated the P/C ratio for the indices only on the four "tops" days in the Naz this year and got, for the tops: 1/9 P/C 1.93; 3/11 P/C 1.09; 4/17 P/C 1.29 and the last top at 5/15 P/C 1.14. In contrast at bottoms I got: 2/22 P/C 2.24, 4/11 P/C 1.63, 5/7 P/C 1.04 and assuming Friday was a bottom, 6/14 P/C 2.10, todays value of 1.38 does not seem to have any significance just as the indices P/C ratio could not be relied on as a good indicator by itself at bottoms or tops, IMTO.
The equities P/C ratio has a greater predictive power, but only for "turns", typically an extremely low P/C ratio of under .45 occurs near tops, and an excessively high P/C ratio above 1.00 at bottoms, we got a little (for an hour or two) above 1.00 on Friday morning, but the public's appetite for call resumed very rapidly, and by the afternoon, they were buying calls with abandon. By the close today, the equity P/C ratio reached .50, a dangerous level for the bulls, since the public voting with their money bought about 2 calls for every put.
Zeev |
