All donations go towards web site maintenance for all of Technical Watch,
keep it free of charge, and may be tax deductable as an investment expense.


PayPal Verified
Join our market chat sessions every Tuesday and Thursday at 4:00 pm Pacific time!
More information on subscriber services can be found at
http://www.technicalwatch.com/subs.htm




Support Technical Watch!
Buy from our Book Store!
Register Calendar Latest Topics
 
 
 


Reply
  Author   Comment  
mortiz

TW Patron++
Registered:
Posts: 1,054
Reply with quote  #1 

Several of the breadth, volume, and price indicators are in the oversold region, but there are a few reliabble options related tools suggesting more work is needed to flip more traders to the bear side.

The weekly OCC small trader (10 or less contracts per transaction) buy-to-open equity options PC ratio has slowly risen in the past few weeks.  For a high probability bottom typically, this indicator requires a higher PC ratio than what we are currently witnessing.

OCC ST BTO PC 8-10-14.PNG 

For many years, Investors Business Daily (IBD) has posted an options indicator they call "Put-Call Price Premium Ratio".  I have no idea of the indicator's architecture, but I have recorded the data for nearly 20 years (with a pause in the late 1990s). Once the indicator turns higher following a test of 0.8 region, a robust rally usually follows.  There have been exceptions where the indicator did not require testing the 0.8 zone before a strong rally unfolded, the February 2014 bottom being a recent example.

IBD PC $Prem 8-10-2014.PNG

The good news for the bullish case, is there are several other options and short selling related tools that have reached levels where prices bottom, but these are two key indicators that have not given solid buy signals yet.

Randy
 


0
kamakaze

TW Member
Registered:
Posts: 33
Reply with quote  #2 
Thanks!
__________________
I started with nothing and have thus far experienced little change.
0
mortiz

TW Patron++
Registered:
Posts: 1,054
Reply with quote  #3 
K, good to hear from you, been awhile.

Friday August 15th, another options indicator, the SDS (Proshares SPX 2x Short ETF) call-put ratio turned higher following a deep dive triggering a buy signal.  I have been collecting the SDS options data since its inception in late 2007, and it provides decent buy signals at bottoms. This chart is an abbreviated version (since October 2012) for granularity.  Since SDS is an inverse ETF, I flip from the usual put-call format to a call-put ratio. 

Some of my other favorite options indicators, particularly the composite OEX constituents and the SPX composite constituent put-call ratios, have drifted into neutral to slightly bearish zone.  However, when the SDS call-put ratio posts this type of pattern, more often then not price reacts by moving higher.

SDS CP Ratio 8-15-2014.PNG 

We'll see what happens from here.

Randy

0
kamakaze

TW Member
Registered:
Posts: 33
Reply with quote  #4 
Thanks again!
I've been  running chart scenarios on the SDS for some time, watching the daily mo. SDS price running out of steam to the downside and looking to have reached a bottom in March and showing upside potential in the SDS,
Yet your work, if i understand it, indicates a _buy_ signal for the $SPX?

__________________
I started with nothing and have thus far experienced little change.
0
mortiz

TW Patron++
Registered:
Posts: 1,054
Reply with quote  #5 
The SDS call-put ratio data has triggered a buy signal for SPX, for what it's worth.

The SDS ETF's outstanding shares have increased by ~114% with the SDS total assets increasing by less than 4% since the beginning of 2013. Meanwhile SDS price is down 52%, and the SPX price is up by 35%. One could assume the dramatic rise in SDS outstanding shares is driven by hedging strategies along with pure speculation of a SPX price decline.  At some point, SDS will have its day when a strong SPX correction unfolds.  The below chart illustrates the rise in SDS outstanding shares over the past few years.

SDS OS Shares 8-18-2014.PNG 

Another options tool giving a neutral to bullish message (for now) is the composite retail put-call (PC) ratio of all the OEX constituents.  Using a Python script, this data is downloaded daily from the Options Clearing Corporation (OCC) data base. The OCC groups the options volume into three categories: retail, market makers, and firms.

Although I monitor all three groups PC ratios for the OEX components, the retail action is (IMHO) the most useful.  Particularly with these large cap companies, the market makers employ call options strategies on ex-dividend days by buying and selling calls, skewing the call volume.  For example, Monday, August 18 was MSFT ex-dividend date and the market maker call volume was ~ 750K contracts. 

The 100 OEX constituents account, on average, for 41% of the total retail options volume that includes volume from all of the twelve exchanges the OCC clears.  The chart below shows a strong buy signal on August 6, 2014, and is currently in its neutral zone.

OEX Constituent PC 8-18-2014.PNG 

The next couple of weeks will decide if these tools did their job or not.

Randy

0
kamakaze

TW Member
Registered:
Posts: 33
Reply with quote  #6 
THANKS AGAIN!
Terrible internet access, slow at best.

I guess SDS could be a no time factor put on the SPX, the huge share increase would/could be seen as a contrary indicator, tho if it's due to institutional hedging, then, perhaps that accounts for the dip in outstanding shares apparent in the chart on mkt dips?

__________________
I started with nothing and have thus far experienced little change.
0
doc

TW Patron++
Registered:
Posts: 497
Reply with quote  #7 
Hello Randy,

I must admit that I was a bit surprised by the strength of this rally off the early August lows, but your indicators were correct. Now that we have rallied to new highs on the SPX, with the RUT lagging again, I think we will have stiff headwinds in the coming 2-3 wks due to an anticipated Hurst 40wk low. 

Doc
0
kamakaze

TW Member
Registered:
Posts: 33
Reply with quote  #8 
Hello doc,
I've missed your postings on the Hurts Cycles, hope to see more of them...OK?
BTW, 
What with the strength of this rally, would it then be appropriate to suspect that the sum of cycles longer than 40 weeks is hard up?
thx,
mike

__________________
I started with nothing and have thus far experienced little change.
0
doc

TW Patron++
Registered:
Posts: 497
Reply with quote  #9 
We are 28+ wks along a 40wk cycle from Feb lows that has in recent times been running 32 wks in length. Unless the 40wk came in very early at 26+ wks, the 40 wk is still straight in front of us and to be respected. The 80wk is not hard up, in fact is peaking as the 40wk low comes in as the 40wk is the half way point of the 80 wk. 

Doc
0
Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.






Copyright 2000-2017 Technical Watch