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Sentiment indicators posted earlier this weekend at this link:


illustrated some encouraging progress for the bulls in some sentiment tools.


The latest weekly Options Clearing Corp's (OCC) data has made progress over the past couple of weeks, but there is still a mood of complacency, particularly among the smallest equity options trader (1 to 10 contracts per transaction).  The first chart is the equity Buy-To-Open (BTO) call-put ratio for the smallest equity options traders.


The weekly BTO call-put ratio for this group fell to 1.97 last week, which is moving in the right direction for the bulls, but is not yet at fear levels associated with price bottoms.



Next is the small trader equity BTO dollar weighted (premiums times volume) call put ratio. The ratio has fallen below 5 from the extreme of 11.5 a couple of weeks ago, but is still well above the fear levels of the 2.5 range.



The total retail customer (all transaction sizes) equity BTO call-put ratios are still in the neutral zone at 1.41, with a small uptick last week.  For the bullish case, it would be preferable to have seen a down tick in last week's numbers considering the pressure on prices.




The total retail customer dollar weighted equity BTO call-put ratio also remains in the neutral zone, but this indicator also ticked up last week.  Such action does not suggest mounting concern with the retail equity options traders.



A look at the small retail equity call option "premium decay" players, Sell-To-Open (STO), versus the BTO call options activity.  This indicator divides the dollar weighted BTO call options by the dollar weighted STO call options.


The large spike a couple of weeks ago, along with its continuing lofty level, suggests the smallest equity options traders are expecting higher prices in the near term per their reluctance to write equity call options relative to their appetite for opening long call contracts.  This tool is still classified as exhibiting too much complacency by the smallest equity options traders.



Next is the small retail equity put option "premium decay" players, Sell-To-Open (STO), versus the BTO put options activity.  This indicator divides the dollar weighted BTO put options by the dollar weighted STO put options.


This indicator is showing some improvement over the past couple weeks by illustrating the "premium decay" put option writers are becoming a bit more concerned with selling-to-open put contracts relative to the put buy-to-open activity among the smallest options traders.  The 5 week MA of this indicator is still in the complacency zone and will likely require a few more weeks of mounting pessimism to reach the "fear" zone.



An update of the ISE exchange's ISEE sentiment indicator measuring retail customer BTO call versus put activity. For the bullish case, constructive progress has been made over the past two weeks and this indicator can now be classified as neutral.



Summarizing the current sentiment climate addressed in this post and an earlier post focusing on other sentiment indicators, one could conclude the complacency excesses evident a couple of weeks ago have been dampened.  There is more work to do in the "fear factor" concept before declaring sentiment is extreme, thus setting the table for another bull leg.


The Rydex traders have collectively become cautious, but the missing link is the mood in the equity options sentiment indicators.  Since far more money changes hands in the equity options market than the Rydex fund complex, I am of the opinion further price deterioration in the intermediate term may be needed before a solid bottom is in.






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