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Strategies & Market Trends : Investor sentiment surveys - a technical indicator

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To: Q. who wrote (149)	1/28/1999 8:09:00 PM
From: dospesos	of 167

Thanks very much for all the AAII data. Everyone has his or her favorite put/call ratio. I use volume (some us open interest)of the combined CBOE (equity) and OEX (index) put/call ratio. If there is such a thing anymore as a normal range, it would put it at between 0.60 and 0.80. Getting up toward 1.00 is pretty good warning of a bottom, and getting down to 0.50 the opposite. Since the middle of November there have been 14 days when the ratio has been under 0.50, including one run of five straight days right at the first of the year. This is pretty frothy. At the same time, the VIX indicator has been high. Usually when the p/c ratio is this low, VIX would be expected to be somewhere near or under 20, but it has stayed well over 25 and often over 30. As I have posted before, I think there is a VIX effect somewhat like what happens when margins are increased. Or maybe that's too strong. Maybe it's tempering things by the fact that options sellers are demanding a higher premium because they sense a change coming. In any event the bearish p/c ratio has not caused more than a consolidation and VIX is high. This is similar to what we saw from late March to June last year. This similarity has kept me from getting bearish too soon. So will we get another run like 15 June to 20 July 1998? Or do we just upend like the Titanic? I "think" that if we begin to see VIX drop towards or under 20 while the p/c ratio remains low, we will be seeing another good rally out of this congestion zone. The poll type sentiment measures as carried in Barrons should confirm this by staying up. If VIX stays high and we see the p/c ratio dropping off, I think a dump is coming. Sentiment is like psychology, so there is more art than science in interpreting it, but that's the way I see it right now. I think this is a great site. I guess from a contratian point of view the fact that so few people post shows just how important sentiment is...;-)

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