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mortiz

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Reply with quote  #1 
Following a healthy sell-off last week, it was alarming to see the retail Buy-To-Open (BTO) action as reported in the Options Clearing Corporation (OCC) weekly retail BTO Put-Call (PC) ratios.

Below is the weekly total retail BTO PC ratio for equity options, regardless of transaction size.  The OCC includes ETFs options volume in their equity category, and typically ETF options volume is biased toward puts for most of the high volume ETF options contracts.  This chart includes ETF BTO volume, but if one were to remove the ETF volume, this ratio would likely show far more complacency than currently illustrated.

Note the week ending 1-8-2010, the retail BTO PC ratio was 0.39, the lowest PC ratio for this series since September 2000. Last week's PC ratio was 0.52, meaning retail options traders opened up (on the long side) nearly two call contracts for every one put contract, not exactly the action one would expect considering last week's price action.



Next is the weekly OCC retail Index and Equity BTO call-put ratio, using the same approach as the ISEE Index, except BTO call and put volume is from all options exchanges, not just the ISE exchange.

This indicator posted a 240 level the week ending 1-8-2010 (an astounding level) and throttled back to 180 last week, still a higher level than any time in six years.



There are several other alarming sentiment measures that have been extreme for many weeks.  In a bull market, far less weight is given to sentiment tools.  However, when a bull market correction unfolds is when these tools dictate paying more attention to.

Another event's consequences that occurred around the first of November, 2009 should now be considered.  On 10-28-2009, the NY AD MCO posted an extreme negative low of -114, with the SPX closing at about 1043. 

Typically (but not every time), extreme MCO levels like the value posted 10-28-2009, will result in a lower price low in the following 2 to 4 months, accompanied by a MCO value not matching the previous negative extreme.

The "lower price low" phenomenon 2 to 4 months following a negative MCO extreme, has a success rate of a little more than 80%, so while not infallible, a test of SPX 1043 could likely be in the cards over the next couple of weeks.

The tsunami of liquidity in the system may trump further price weakness, but this correction likely has more room on the downside.

In the shorter term, the momentum tools are obviously oversold, so a bounce should be expected. The NDX Climax Indicator (aka CLX) posted a -76 extreme Friday, which almost always slows down a decline, a least for a couple days.

FWIW

Randy
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hiker

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Reply with quote  #2 
thank you, Randy.

of interest is your SPX $1043 downside target vs. what Mark Arbeter of S&P stated on Jan. 25th is the potential downside target:

link to the January 25th public article by S&P -

this link launches the PDF file -

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MD...

the above link is found in the top blue section titled -  "U.S.
Sector Watch: Government-Induced Uncertainty"

http://www.standardandpoors.com/home/en/us

excerpts -

"Technical Targets

Mark Arbeter, S&P’s Chief Technician, believes the S&P 500 will likely
correct by about 10% to the 1035-1040 area, where he sees trendlines, retracement levels and moving averages offering support. 


He believes the Nasdaq could fall as much as 12% to the 2050 level.

Because of the technical and fundamental factors in place, the S&P Strategy
team downgraded materials and energy this week, as we think there will be better entry
points down the road.”
--------------
one data element that I noticed yesterday:

plot the 89 vs. 233-period ema's for the 60-min NYSE Composite Index

yesterday (Jan 27) represents only the second negative cross for these two relatively slow ema's since the positive cross in March

the other negative cross was in July, and a test in November at the November price correction

a sustained negative cross now for these two MA's will confirm a change of price trend

$7083 is the major horizontal support that has now failed to hold, bulls want to see it recaptured ... $6700 horizontal was
tested and held at the November intraday low

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doc

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Reply with quote  #3 
Hello Randy,

Thanks for the data. Is there any time lag or is the data current through the date that you posted it. I'd guess the options data should look a bit better after this week.

Also, I wonder how much the ETF data is polluted by the mix of calls and puts alike on bullish and bearish ETFs like QLD and QID, SSO and SDS, etc. Obviously, puts on bearish ETFs aren't exactly reflective of bearish sentiment and calls on them aren't bullish either. I'm not sure if the volume on these ETFs is substantial enough to murky the waters in the total data.

Doc
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hiker

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Reply with quote  #4 
Doc,

I just now went to the OCC site, and found the data for the put-call ratios which are now current through January 27th, and daily updates are available.

I suggest Randy's post was likely using data current through Jan. 22.




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doc

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Reply with quote  #5 
Thanks Hiker. Any thoughts on the mixture of calls and puts on bull and bear etf's incl the double and triple etfs clouding the picture?

Doc
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mortiz

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Reply with quote  #6 
Hi Steve & Doc,

Thank you much for the comments and additional analysis.

The data used in this thread's charts are the weekly retail only (market maker and firm volume not included) equity OCC Buy-To-Open (BTO) put and call volume, is through January 22nd.  As far as I know, there is no public source for BTO options data other than the ISE exchange. 

The ISE exchange accounts for 22% to 23% of the total options volume over the past couple of months, so while being a reasonable sample for daily data, it does not tell the entire story.  Interestingly, the Philadelphia options exchange has become a large center for options volume, dominated by market makers and firms.

The inverse ETF options volume is virtually in the noise range of total options volume.  I track the major inverse ETF options volume daily, and although interesting data, the volume is not high relative to other ETF contracts.

By far the largest options contract where calls are bearish bets and puts are bullish bets is the VIX product, exclusively traded on the Chicago exchange. The VIX series is classified as an index contract, and at times, constitutes up to 25% of the total index options volume.  Interestingly, on January 13, 2010, nearly 400K VIX call contracts were traded, a couple days prior to the beginning of the current correction

The retail options players comprise a significant percentage of the total VIX volume.  By the way, Friday January 22 nd, there was another large spike in VIX call volume, likely the closing of the positions initiated on January 13th.

As far as the price target potential, the SPX 1043 level is the point where the NY AD MCO reached its extreme. If we do indeed get a MCO divergence with price relative to the late October 2009 lows, 1043 will have to be taken out.  If we do get further price breakdown from here, SPX 1030 would be a likely target based upon the range of this week's price consolidation level relative to the recent SPX highs.

The NY AD MCO will have to resist a low less than -114 for a divergence in the event the SPX does dip below 1040. 

Thanks again to both of you for your feedback; your thoughts and opinions are of great value.

Randy





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