Today was another shock and awe session for bulls and bears alike, as the indices posted huge gains from technically significant levels. Despite the breakouts, however, the put to call ratio remained stubbornly high, rising throughout the session. Whether it was market makers buying in their short put positions or speculators trying to catch the top, we cannot know. However, the persistence of the put to call ratio has been one of the characteristics of this rally. Unlike last year, when call volumes exceeded put volumes by a wide margin on all but the sharpest declines, this rally shows every dip, no matter how shallow, being met with a spike in put volumes and a relatively high put to call ratio. This looks like bad news for bears, because the willingness of traders to assume a bearish stance on every pullback means that the dips will be bought not just by optimistic bulls, but also by shorts covering their positions. I believe that it was just this phenomenon, among others, that led to the rangebound chop during the Nikkei's bear market of the 1990's. I saw a chart of the 1992-1993 Nikkei which looked remarkably similar to our current indices. There was an extended rally in the spring of 1993, followed by sideways chop into October of that year, which only then saw a sharp plunge.
~OI |
