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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Cathedra who wrote (23727)	8/24/1999 7:02:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

Tom, the put/call ratios of the last two sessions show that the fear engendered by the correction is unwinding fast...specifically if you look at the various components you will note that there is a lot of call buying in individual issues and a lot of put buying in index options. this is normally a bullish sign, as market rallies are often preceded by this strange dichotomy - the ind.equity calls are bought to participate in the upside seen in the best performing stocks while the index puts are bought as hedges. i have to tell you though that the interpretation of the options data has become a very difficult task this year - this is due to the fact that money managers rely increasingly on leap options to hedge against systemic risk, and some have dropped their hedging strategies altogether. dollar volume of OEX puts has reached record lows this year due to the perception that nothing can bring the market down. this complacency about market risk is a direct result of the Fed's successful bail-outs whenever the market seemed to be in trouble. in any event, the p/c ratios have reached levels during the correction that are consistent with intermediate term bottoms and options traders have shown a healthy degree of skepticism toward the ensuing rally. this skepticism is now increasingly on the wane, and will likely be completely gone once the other indices are done playing catch-up with the Dow. however, the buyers of index puts have one strong argument in their favor: the latest rally had some of the weakest internals ever on display during a move to new all-time highs in the INDU. we'll have to wait and see how the ratios develop if the market suffers a bout of post FOMC hangover as i currently suspect it will. if they rise again as quickly as they did during the correction we may be able to put in a secondary higher low from which a strong rally could commence. regards, hb