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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 14 4:00 PM EST

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To: pater tenebrarum who wrote (12940)	5/5/1999 1:21:00 PM
From: Daniel Joo	Read Replies (1) of 99985

Heinz, Wie geht's? I was first put on to sentiment analysis by Bernie Schaeffer and have been following his analysis for a while (read his book.) His interpretation of the options data is the same as your and as a matter of fact is calling for a DOW 11,500 by the end of the year. Anyway, here's my thought. Since a market decline is usually led by big boys and is exaggerated due to overreaction by the smaller players, IMO, the big boys are trading put options on the index in anticipation of such a move. The bearish sentiment on individual equity options leads me to believe that your average investor is very bullish on the market and are taking bigger risks by trading options on their favorite stocks. Hence the Equity Put/Call ratio of 0.417. The extreme ratio of 2.017 for the OEX Put/Call ration leads me to believe that the bigger players think the market is headed lower. Of course, I'm making the assumption that most of the smaller players trade equity options and the volume on index options is dominated by the bigger players. The divergence of the 2 indicators is ominous IMO. Obviously, Bernie and the rest don't agree with me. If there is a bounce, I will add to my short/put positions. As I have noted in my previous posts, I see signs that the bigger players are moving money out or not investing additional moneys in the market at current valuations. If we see enough margin calls generated by this current decline, it will only get worse from here. Can't buy on the dip without capital. Dan

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