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mortiz

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Reply with quote  #1 
Index prices are at all-time or recovery new highs and several sentiment indicators (I know, sentiment is worthless) are much closer to important price bottom levels than one would expect.

Those who sub to Jason Goepfert's service or the McClellan publications, are likely familiar with the liquidity premium tool which compares the volume of an index's components versus the volume of its associated ETF.  The theory is, when ETF volume is unusually large relative to the underlying index component volume, traders are taking a more defensive position by turning their sights toward ETFs rather than individual stocks.

ETF volume has been unusually heavy of late, and in a recent Barron's article, it was hypothesized the ETF volume increase was possibly due to the Chinese government expanding its US investments to equities in addition to US credit markets.... don't know if that is the case, but most are aware of Chinese interest in Blackstone.

We'll let the pundits determine why ETF volume is increasing, and most of us will stick to the associated technicals.  First the Goepfert liquidity premium (LP) recipe applied to RUT and IWM volume.  The recent consolidation in RUT price has resulted in significant relative volume in the IWM ETF, which has been reported to have extreme short interest.  The RUT-IWM LP is at levels normally associated with significant price bottoms.... odd.



The Dow-DIA LP is exhibiting the same level of extremes as the RUT-IWM LP variant.



The SPY-SPX LP (Goepfert method) is also creeping up to the buy zone.



When Tom McClellan first became aware of Jason's LP work, he derived a version of the LP indicator whose recipe is quite different.  IMHO, I believe the McClellan version is better at pin-pointing price tops than Jason's and does a fair job of identifying bottoms as well. Note the McClellan SPY-SPX LP version probed into buy territory last week.



The NDX-QQQQ LP version has not been effective over the past several months, and could be under the influence of the increasing popularity in QID.  A colleague has added the QID volume to the QQQQ volume for deriving the NDX-Q4 LP tool, but has found the general message is the same.  Note in early May, this LP flipped in sell territory and now is almost into the buy zone, with the NDX price being as the same level as when the sell signal was generated.



Moving on to equity options put-call ratios, next is the CBOE only equity put call ratio over the past 10 years using longer moving averages.  The 20 day moving average is the blue curve and may be finding a bottom now, but note important price tops do not typically coincide with the CP ratio lows and often occur several weeks after the curve turns upward.  Note the level of the black 60 day MA of the equity PC ratio... compare the level to other extremes over the past ten years.



The weekly OCC market makers call-put ratio of closing Buy-To-Open (BTO) positions remains well below the levels typically associated with important price tops.

The red circles on the blue market maker call-put ratio show where important price highs have occurred over the 7+ years.  Normally, the blue curve achieves much higher levels, then rolls over and begins declining weeks before a top.  Maybe this behavior is changing this time, but will a first if it does.



The weekly smallest retail equity options traders (1 to 10 contracts per transaction) put-call ratio is reaching its lower range which a danger sign this group is maybe getting too bullish.  I have found this indicator can chop around in this range for weeks or months before prices top out.  It appears the market maker action will determine when the bullishness of this smallest group of retail traders begins to matter.



The largest group of equity options players, over 50 contracts per transaction, are becoming more bearish as illustrated buy their BTO PC ratio turning up nominally over the past couple of weeks.  The behavior of this group will need to be monitored, since they do begin increasing their put activity well in advance of tops.  However, the BTO PC ratio of the largest retail traders remain at the upper range established over the past several years.



Those familiar with Traders-Talk.com, are aware of the daily position polls and bullish-bearish polls.  The following two charts speak for themselves, although these are just surveys which may or may not reflect what the voters are really doing.



Bull-Bear Poll:



Along with stock index COT data, short interest, etc, it does seem there needs to be additional capitulation by bears before we see an important price high that will hold for a year or more.

Getting off the sentiment stuff, the small caps may be ready for exhibiting a bit more strength than they've shown for some time.  The RUT AD MC has possibly carved out what could prove to be its first constructive pattern in many weeks.



The RUT ID MC is showing similar constructive potential.



FWIW, IMHO, etc.

Randy
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Denleo

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Reply with quote  #2 
Excellent work. Thank you.

Denleo
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