Thank you to all for your feedback. The additional supporting sentiment data points by Jerkstore and Johnny are other events to be considered. As we are all aware, sentiment can be a tricky discipline (particularly when assessing complacency), but I am a firm believer in its utility, thus my willingness to devote time to the study of sentiment in conjunction with other tools.
With respect to Doc's typical, valuable questions, due to the relatively short period of time the OCC options data is available, there is really no precedent to the market maker behavior currently in play with respect to price action, i.e. price is more in a congestion zone rather than a climatic sell-off conclusion. In most past examples of market maker call-put extremes, the extremes come in clusters of longer duration than two weeks, thus more work may be needed over the next couple of weeks before the price bottoming is complete.
In addition, the market maker lower extremes were precluded by historically high values in early January, 2006. When the January 2006 high extremes occurred, I conducted a little research in the configuration of the internals at other overbought extremes. What I found, was most of the overbought extremes took place in the 2000/2001 time frame, which transpired in a major price topping "sentiment range"... more about sentiment ranges at the end of the message.
What I found in the internals world at the market maker call-put extreme high in January 2004, was both the NYSE common only and composite AD McSums were over +1000, a rather overbought level and followed a strong price uptrend over the prior nine months. In addition, the ratio-adjusted volume McSums were nominally lagging the breadth McSums at the time. Normally, bulls like to see "strong" volume indicators stronger than "strong" breadth indicators during a price uptrend.
In contrast, volume was leading breadth at the January 2006 high posting in market maker call-put ratios, resulting in range bound prices over the past 10 to 12 weeks. What is unprecedented, is the current state of internals indicators as measured by the AD and volume McSums accompanied by extreme lows in the BTO-STO OCC options ratios. All of the broad-based indices' McSums I am aware of remain above zero following their corrective phases over the past many weeks, which I believe is a key component of the bullish case.
The refusal of the McSums to journey below the zero line during the price chop is a testimonial to the relentless bid under the market. Add to that, there are many sentiment tools (see recent posts by Jerkstore and others) suggesting many traders are betting a top is in place, which is added fuel to drive this market higher.
To keep the wall of worry in place for folks like me, I have noticed an alarming divergence over the past week or so between a new 52 week high in the Dow, while the NDX was around 5% lower than its most recent 52-week high. I allow more credibility to new 52-week highs in the SPX when NDX is off 5% or more from its 52 week high, but when such divergences unfold, the near term is not profitable for the bulls in most cases, time will tell.
I plan to keep a close eye on Aire's cycle work as well as the behavior in the internals over the next couple of weeks for further clues to determine if we are approaching a "melt-up" phase. Regardless if a couple more weeks of chop are in the works before a robust rally, the table is being set for a potential upside surprise IMHO. As always, we will let the market decide and act upon what it is telling us.
For most options related indicators, there are three "ranges" of ratio levels dependent on what type of price cycle we are in. Again, my various options data only goes back to the mid-1980s, so the sample space is somewhat limited. But with the limited data I have, the three sentiment level ranges are:
1) The "middle" of price uptrends with moderate levels
2) Major Tops with extreme levels (only one good example, 2000-2001)
3) Bear Markets with extreme levels opposite of major tops
There are other sentiment indicators with a long history: member-public shorting, sentiment surveys, and volatility that confirm the changing ranges in sentiment values. One might say implied volatilities are only recorded from 1986, but one can apply actual volatility techniques to price data going back to 1896 providing verification of the "three ranges" theory.
We are currently in the middle of price uptrends (IMHO), but signs are emerging the current range is rising, but not yet to levels of major price tops.