Date: Wed Sep 07 2005 10:41
trotsky (@pm stocks - sentiment data) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
so what's holding them back? the answer imo is to be found in the large number of open calls in many of the major optionable pm stocks. large open interest at key strikes creates 'options-related resistance' that acts as a powerful drag on price performance. however, this options resistance can also turn into an afterburner powering an advance IF prices manage to get past the strike prices concerned, as all the uncovered calls that have been sold provoke delta-hedging.
THE stock to watch in this context is NEM, the put/call open interest ratio of which has just fallen to its lowest point in a year ( a negative contrarian signal, as it indicates that option traders are now more bullish on NEM than at any time during the past year ) . it has large call OI at the 40, 42.5 and 45 strikes. the biggest support in the form of open put options otoh is provided by the 37.5 strike.
imo NEM must overcome these call strikes decisively, especially the 40 strike, in order to open the way for a bigger advance in the XAU; alternatively we want to see these open calls taken off.
the next problem are the XAU index options. shortly before and after the August expiration, put OI consistently hovered just below call OI , producing a halfway decent , if not overwhelmingly convincing ratio. this has since changed, as in the weeks since the August expiration, call OI has steadily increased from 15,370 contracts to now 23,190 contracts, while put OI has remained almost flat, increasing from 14,720 to only 15,890 contracts. the resulting ratio is now lower than 96% of all readings over the past year. the biggest concentration of open calls is in the September and October 100 strikes, as well as the December 115 strike. after September expiration, the Dec. 115 strike may act as an attractor for prices, but imo we'd need to see a shift after Sept. expiration in the form of more puts being added at higher strikes ( currently, put OI is concentrated in strikes ranging from 85 to 92.5, an upward shift would be desirable ) .
all in all , the current situation is not what bulls would like to see. by way of comparison, during the big advances in the XAU in the first half of 2002 and from late March to December 2003, put OI on average exceeded call OI by a a large amount - 145 puts open for every 100 calls, while right now we have only about 70 puts open for every 100 calls.
a recent positive development from a sentiment PoV is the fact that Rydex fund traders have become a bit less enthusiastic about the sector and have withdrawn about $35 m. from the Rydex pm fund ( which opens the way for money to flow back in ) . |
