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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (18384)	12/18/2003 3:47:50 PM
From: Rextar98	Read Replies (2) \| Respond to of 19219

Tempest should be working well for us. Author: Normxxx Date: December 18, 2003 11:45 AM Subject: Signs and Portents Signs and Portents The 21-day moving average of the equity put/call ratio with QQQ options removed is now sitting at .50, one of the lowest readings seen in the past couple of years. If we take a shorter-term view, the outlook is just as grim. A 5-day moving average of that same put/call ratio is now sitting at 0.45, again one of the lowest readings in the past couple of years. If we take a look at how the S&P 500 has performed in the past after such low put/call readings, it is not pretty. Five days after the 5-day average hit 0.45 or below, the S&P was an average of 1.5% lower, with a maximum gain of 0.7% and a maximum loss of 4.9%. That is striking, but even more troubling is this: out of the 19 days that showed such a low put/call ratio, the S&P was lower five days later every time except once (the aforementioned 0.7% gain). Another surprise? 17 of the 19 days have occurred since June of this year, a time when the S&P rallied approximately 10%. Put/call ratios tend to bring out very definite opinions from most traders. Those who know options intimately, or who have worked at professional money management firms, usually express outright disdain for them, since they know what kinds of games are played (especially approaching expiration), and that there can be a thousand different underlying strategies. Say what you will about them, but this particular gauge has been spot-on this year. I never base trading decisions on just one measure, but the history of this indicator is very good, and right now it is suggesting that any further strength, should we see it, will not last long. My intermediate-term stance has not changed; I do not see a low-risk, high-odds opportunity on either the long or short side. I continue to believe that pushes to new highs will soon get pushed back, while smallish declines of 3%-4% will find buyers, at least through the beginning of 2004, and particularly as we approach the very positive end-of-month seasonality we’ll be entering beginning next week. We are already in the 'Santa Clause Rally' period which started Tuesday and runs through 6 January. The put/call data from above certainly gives me pause, and it’s strong enough evidence that should we see another push higher that begins to falter, I would want to be looking short, at least for a trade. Don’t forget that volatility fell to a new 7-year low yesterday. Most traders have stopped talking about it or wanting to hear about it (a sign in itself?), but history is littered with cases of quick, sharp declines when traders were least expecting it.