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Just thought you folks might like to see another piece of artwork related to
mkt timing. Some might have been told that option sentiment isn't useful
anymore for market timing because of hedging purposes. Perhaps that is
because they are inputing the wrong data into the ratios. The belief appears
to be true for oex volume and open interest. However, when the CBOE Equity
call volume is divided by Equity put volume a seemingly useful indicator is
obtained. The attached .gif uses the raw unadulterated data from the CBOE
each day after the close. The redline in the second subgraph from the top is
the Equity Call Volume divided by the Equity Put Volume. The cyan line
running through it is a ten day exponential moving average of the ratio.
Note what happens to the OEX as the ratio rises and peaks above about 2.8.
Also in the 3rd subgraph from the top is a three day summation times a scale
factor of 10 of the ratio and thus provides a warning when it rises above the
80 line. The bottom plot is a 5 day stochastic momentum index with 3 day
smoothing from Bill Blau's Momentum and Divergence book. When the SMI and
C/P ratio have peaked a pretty good Put trade can be made. The confusing
situation now is the C/P ratio is way ahead of the SMI. Will be interesting
to see how the C/P, OEX and SMI play out over the next few days.
BobR
Attachment Converted: "c:\eudora\attach\EQUITYCP1.gif"
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