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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (157371)	3/27/2002 1:32:17 PM
From: yard_man	Read Replies (2) \| Respond to of 436258

not a bad idea ... but you've got to do it ... at the highs sell the homebuilders while you are at it <ng>

To: Real Man who wrote (157371)	3/27/2002 1:40:21 PM
From: rolatzi	Respond to of 436258

... and buy Qubes: Optimism on the rampage Cube contracts signal big trouble ahead By Thom Calandra, CBS.MarketWatch.com Last Update: 10:11 AM ET Mar 27, 2002 SAN FRANCISCO (CBS.MW) - Investors are still looking for Mr. Q-bar. Ordinary folks apparently think the QQQs, or Nasdaq 100 Trust "cubes," can only go in a straight line: up. They've been buying a ton more call options on the tracking stock than put options - going on eight trading days now. The cubes (QQQ) are among the most heavily traded of all securities; on Tuesday they traded 92 million shares. The call options on the cubes, which represent the 100 mostly technology stocks in the Nasdaq 100, are also among the most active options contracts in U.S. markets. Christopher Johnson, senior quantitative analyst at Schaeffer's Investment Research in Cincinnati, sees the current streak of low put-call ratios on the cube contracts as a sign of excess optimism. He calls it "the slope of hope." The QQQ single-day volume put/call ratio compares the daily number of put contracts, which are bets the cubes will fall, to the daily call volume in the front-three month options. "When the volume of puts outweighs the volume of calls, the ratio moves higher, signaling pessimistic investor activity," Johnson explains. "When calls outpace puts, the ratio moves lower, indicating that investors are looking forward with an optimistic view." Optimism is the word of the day right now, and that's a problem - especially in the face of weak earnings, rising oil prices and gains in gold stocks, which usually run against the trend of the overall stock market. Investors took heart in soaring consumer-confidence readings earlier this week. Johnson uses options activity as a guidepost to investors' feelings about the market's direction. Market bottoms, he says, never happen when investors are feeling this good about their stock picks. Indeed, the average single-day ratio for put-calls on the QQQs is around 1.85, meaning there are 185 put contracts traded for every 100 call contracts. Tuesday's single-day reading of the QQQ volume put/call ratio weighed in at 0.20. That's 20 puts traded for every 100 calls. "Talk about optimistic options activity! Let's put this into perspective," Johnson told me Wednesday morning. "In more than three years worth of trading data (568 trading days), the ratio has been able to stumble to such a low level only three other times (0.53% of the time)." When the robust optimism happened twice toward the end of July 2001, the cubes fell as much as 15 percent in the following 25 trading days. On a third occasion, when the QQQs' put-call ratio fell to 0.13 at the end of December 2000, the computer stocks actually rallied over a 25-day period. "One of the pitfalls of having only three signals in the data," he says. More revealing is a study Johnson and his colleagues did on spans when the put-call ratio stays low for at least seven trading days. "On average, after these readings, the market has performed poorly with respect to the at-any-time returns for QQQ shares," he says. Once again, in only one instance, at the end of 2000, did the cubes post gains in the 25 days following the streak of optimistic options readings. In other instances, the tech stocks got hammered - on average between 5 percent and 9 percent losses. In late February 2001, the QQQs fell 28 percent in the following 25 days after the rosy put-call readings. "The bottom line of this story is that investors continue to slide willingly down the slope of hope," says Johnson, whose top recommendation right now is Newmont Mining (NEM), a gold stock. "Market bottoms are rarely formed while optimistic sentiment runs wild (as would be the case with these consecutive low readings). Instead, bottoms are normally formed as investors react to adverse market conditions by moving these ratios to extremely high levels," he said. On Wednesday morning, the QQQs fell 1 percent to $35.54 as the Nasdaq 100 Index dropped 0.8 percent. Gold stocks, as measured by the so-called XAU (XAU), rose 3 percent to their highest point in two years.