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mortiz

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Following the price action last week, it appears to be conflicting signals in several of the "money on the table" sentiment tools.

 

First is a long term look at the widely followed CBOE daily total (equity and index) options call-put (not put-call) ratio using a 10 day EMA.  Currently the CBOE 10 day EMA call-put ratio is at 0.995, which is the 28th lowest value in the past 11+ years (over 2900 data points).  Of the 30 lowest CBOE total call-put 10 EMA ratios in the past 11 years, 22 occurrences were in 1994, while the other 8 instances are sprinkled through the 21st century.  Therefore, the current CBOE ratio is at historically low levels, and would have to be graded as a bullish event.

 

 

However, when one takes a look at the total (equity and index) call-put ratio for the aggregate volume of all six options exchanges, the picture is not so bullish.  This data is from the Options Clearing Corp (OCC) thus my database for the all-exchange call out ratio goes back only to the fall of 2001.

 

This put-call 10 EMA ratio is at 1.31, which is neutral.  Note the upward spike last week, which can attributed to some large brokerage firm call transactions of the Philly and Pacific exchanges.

 

 

Next is the QQQQ-QQV options volume-volatility indicator.  This tool measures the daily options volume and volatility for a particular index against the 50 day SMAs of the volume and volatility. The Q4-QQV options power variant gave a strong buy signal late last week.

 

 

Conversely, the OEX-VXO volume-volatility power indicator is at best neutral, as is the SPX-VIX variant (not shown).  In most cases, the strongest and most reliable buy and sell signals from these indicators occur when they are all in agreement... not currently the case.

 

 

The ISE options exchange's ISEE sentiment index is neutral, not much of a positive considering early last week's price action.

 

Next is the CBOE equity only put-call (back to the more familiar variant) ratio (black curve) versus the equity only put-call ratio composite of the other five options exchanges (blue curve).  In all cases, the Q4 volume has been backed out of the OCC data to "purify" the resulting curves for true equity options trading.  The OCC includes the Q4 volume with the equities, not sure why.  Neither of these put-call ratios are currently in the "fear" zone typically associated with price bottoms.

 

 

 

Next is the weekly OCC equity options buy-to-open (BTO) call-put ratio volume data for the small traders (1 to 10 contracts per transaction).  Theoretically, as a group, these are the least sophisticated options traders, the group one would be likely to fade at ratio extremes.  Good price bottoms usually occur when this indicator is at, or below its lower band. Despite last week's moderate price correction, the equity BTO call-put ratio for this group of small traders actually rose!  Not a good sign for the bullish case.

 

 

 

Next is the weekly OCC equity options buy-to-open (BTO) call-put ratio dollar weighted volume (premiums paid times volume) data for the small traders (1 to 10 contracts per transaction). This indicator is not exhibiting any fear in the small equity options traders' camp.

 

 

This chart is the OCC weekly total retail customer (all transaction sizes) equity BTO call-put volume ratio. Although the entire retail customer trader base of equity options is not as bullish as the small trader subset, solid price bottoms typically coincide with this indicator at or below its lower band. This indicator is neutral. 

 

 

 

Next chart is the OCC weekly total retail customer (all transaction sizes) equity BTO call-put dollar weighted volume ratio.  Although this indicator went in the right direction last week for the bullish case, it is still neutral at best.

 

 

This chart is the percentage of assets in the bear funds of the total assets invested in the Rydex small/mid/large cap value/growth funds introduced by Rydex in February 2004.  This group of funds also includes a Dow long fund and short fund. The more established and well known Rydex bull-bear funds' asset flow indicators have become trickier to interpret over the past several months, since large flows into those bear or bull funds are often best not faded in the very short term.

 

These newer funds in the below chart tend to provide more accurate signals for contrarian action. Although this indicator is beginning to rise, it still has a way to go before reaching the fear zone and is currently neutral.

 

 

The final chart is the bull fund-bear fund share ratio of the four largest Rydex bull and bear fund pairs.  This indicator is likely a victim of large "outside" trader action prevalent over the past several months, but is in a very bullish configuration from a historical perspective, the lowest value since the early 2003 lows.

 

 

The sentiment indicators discussed above are exhibiting some cross-currents, i.e. some very bullish, most neutral, and a couple bordering on bearish.  On balance, this suite of sentiment indicators is not signaling a major price bottom from a sentiment perspective, suggesting more work will be needed on price deterioration before sufficient fear is present in the market to support a sustainable price rally.

 

FWIW

 

Randy

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