Equity Put/Call ratio analysis:
I believe that there is some rule that says a "corrective" day (or two) are in order if the Equity P/C ratio is lower than 0.45 I think. Maybe someone can elaborate?? There are some other rules saying that market turns are portended by the X-day moving average of the Equity P/C ratio getting blow Y threshold. Can someone fill in X and Y???
Todays Equity P/C ratio is 0.41, and yesterdays was 0.49. So as PVZ says, last Friday we had a 0.39, which was the lowest since August 31st 2000??? I will check this out myself, but not right now.
Let's look at the Equity P/C ratio during the 1998 post-armageddon rally. I dug through the CBOE website, and calculated the Equity P/C ratio from Oct 15 to Nov 30 1998. The data is below.
Analysis: Premise - the current rally is similar to 1998. 1998 went for a month and a half (mid Oct to end Nov) before a meaningful down day on Nov 30 (a Monday after Thanksgiving). Bears of that time probably looked at Oct 16th and 19th ratio's (0.41 and 0.42) and decided that the end is near. What they got on Oct 20th was a big gap up followed by a plunge. Day ends with NAZ down probably 10 pts. That was the selloff.
Fast forward to early November, bears looks at Nov 2 (0.37 equity P/C ratio) and Nov 5 (0.39). This is really it this time!!! What they got was a 3 day selloff of maybe 15-20 Nasdaq points. Then back up.
Fast forward again to late November. From Nov 20 - Nov 27th the following series: 0.35, 0.35, 0.39, 0.40, 0.30!!!
That 0.30 finally produced a 60 pt hit taking the NAZ from 2010-1950.
Conclusion: Given that we are in a post-armageddon recovery, I believe that it is prudent to relax your rules regarding the use of the Equity P/C ratio. August 31st 2000 was the double top of the NAZ summer relief rally. Currently we are in a scenario coming off a nadir which is totally opposite. As the 1998 data below supports, low Equity P/C ratio's under such a scenario should outright be expected. We could see several more weeks of E P/C's in the 30's and 40's.
Oct 15 - 0.54
16 - 0.41
17 - 0.42
19 - 0.42
20 - 0.46
21 - 0.55
22 - 0.50
23 - 0.48
26 - 0.44
27 - 0.50
28 - 0.48
29 - 0.56
30 - 0.46
Nov 2 - 0.37
3 - 0.47
4 - 0.50
5 - 0.39
6 - 0.42
9 - 0.46
10 - 0.50
11 - 0.47
12 - 0.52
13 - 0.46
16 - 0.52
17 - 0.41
18 - 0.40
19 - 0.41
20 - 0.35
23 - 0.35
24 - 0.39
25 - 0.40
27 - 0.30
30 - 0.42 |
