The 10MA of the CBOE Equity Put-Call Ratio (blue line) broke below its declining channel today, and has made a 6-month low at .502. Any time the 10MA drops to .500 and below, it's considered too bullish/complacent.
With options expiration coming on Friday December 17, the Theory of Maximum Pain suggests a correction take place next week.
Combined with the 5-day ARMS Index which remains historically low (i.e. overbought), I believe that next week is an extraordinarily risky time to establish a new long position.
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I'm almost thinking we should all say "Buy, Buy Buy!!!" So the market does the opposite...lol.
ReplyDeletehttp://www.zerohedge.com/article/china-overheating-again-cpi-and-ppi-both-come-much-higher-expectations
ReplyDeleteDecember options expiration statistics, 1990-2009: http://www.raymondjames.com/images/technical/1210101250_1lrg.gif
ReplyDeleteReference: http://raymondjames.com/technical_commentary.asp
While Money Flow T's suggested a December 6-8th peak the Advance Decline T and Volume Oscillator T indicated Friday the 10th as the peak day. At any rate I now believe there is still minimal downside risk. I agree we could see a pullback this week and likely more volatility then straight pullback. However, it is too early to go SHORT because longer term cycles favor more upside. The problem is that when markets are in a bullish cycle which we are because we have taken out old highs, then overbought conditions are usually worked off rather then subject to any huge correction.
ReplyDeleteParker, I constructed a chart of the Ratio of dollars in long funds divided by the dollars in long funds plus the dollars in bear funds...It also is too bullish...I have enjoyed reading your market comments...See chart@... http://bit.ly/hAyzHR
ReplyDeleteI prefer to structure and over bought - over sold chart so the indicator moves in the same direction as the market. Here is a reconstructed version of Parker's CBOE chart:
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=$ONE:$CPCE&p=D&yr=1&mn=3&dy=0&id=p34462834547&a=216969074
joe
Just Signals
ReplyDeleteCool chart. When you say dollars, do you mean market cap? Can you share which bull and bear funds you track?
Joe
Thanks for the reconstruction. It's not quite the same backwards as forwards (note the differences in the channel), but I can see why you'd want it to line up with price.
Jon
Interesting stats. I wonder that the put-call ratios were going into those December OPEX weeks.
Pelican
What do you think the implications are of high inflation in China?
Jeff
While the Money Flow Ts showed a turn last week in gold, equities, bonds, dollar, euro, volatility (and there is evidence of turn starting in several of them), equities have not begun to correct.
As I wrote about on Tuesday here
http://position-sizing.blogspot.com/2010/12/money-flow-t-status-reviewupdate.html
I see another top coming in equities in early February, as well as a top in Gold in May. As things develop, we may get an indication of top for equities in May as well.
As a result, I am waiting for a correction in equities so I can establish a long position.
I will write a "Year in Review" post around Christmas detailing what we have learned, but clearly we have learned that prices and the NYAD line can continue to rise even after the expiration of a long range AD/T, and as a corollary, a nulled echo low is not guaranteed after the expiration of a T.
Hi all. Concerning daily cash SP500 chart. We are still stuck on DeMark Sequential countdown 13 .. We have NOT had a price flip (required to trigger conservative sell signal).
ReplyDeleteIn fact, for Monday, unless we close below 1223.75 (which would give us the price flip), the sequential countdown will go on a "hold" because we would have a new active sell setup.
Bottom Line: Still no sequential sell (conservative rules which I prefer) in place.
Parker, I don't know what data set Just Signals is using. Most contructing this type of signal (that I am aware of) are using Rydex mutual fund data.
ReplyDeletehttp://www.rydex-sgi.com/products/mutual_funds/info/navs.rails
Daily and historical data is available for the history of the various funds (including inverse funds and money market funds) as end of day price and total assets. It is easy enough to calculate various money flow metrics based on that data and many arrangements of what classes and forms of assets one looks at.
The bulls are beginning to crowd the boat. The AAII bulls are now at 53%. This may not seem high, but historically it is in fact very high for this sentiment survey. The bears are at 22.5%; the spread, or difference, between the bulls and the bears is 30.5%. This is the biggest spread between the bulls and bears since Feb 2007!!!!!! I don’t see how this sort of sentiment can be sustained. Despite the evident strength in the market, a correction will be needed to balance the boat again.
ReplyDeletejoe
I tend to add the "undeclared" sentiment number - in this case, 24.5, to the bearish sentiment number, since they are basically "non-believers" in the bullish case, but undeclared nan-believers (i.e. market is too high to buy, but they will not short it as they are waiting for a correction/pullback to enter the market). Accordingly, i view the sentimenet as 53% bullish and 47% bearish which gives you a completely different view of sentiment. jmho
ReplyDeleteJoseph, you wrote the AAII spread hasn't be that high since Feb 2007. I hope history will not repeat here because as you know Feb2007 was still 8 months before the top of Oct 2007...but history might repeat after all.
ReplyDeleteCarl,
ReplyDeleteA very steep and significant correction began Feb 2, 07.
Wrong oh, I should have said the correction began Feb 22, 07. You ask yourself, will Joe please read before he sends? :-)
ReplyDeletejoe
Parker, yes it is the market cap...I use RYNVX & RYURX...I have another chart using RYPMX (precious metals) and that shows interesting tops and bottoms too...I will post it later and send you the link...I wanted to see how investors were voting with there dollars and so far it is showing that they are buying and selling based on fear and greed...
ReplyDeleteParker, here is the link to see the market cap chart for a precious metals fund...http://bit.ly/hzLt9s
ReplyDelete