Monday, August 10, 2009

A Look At Low Equity Put/Call Ratings Since March

One notable from Friday was the extremely low reading in the CBOE Equity Put/Call Ratio. It closed at 0.49 – more than 31% below its 200-day moving average. In June I looked in detail at other times the Equity Put/Call closed more than 25% below its 200ma. It suggested a bearish edge for the following day has existed since the end of 2007. Concerned that the results were just a byproduct of a bear market I also showed all of the trades since the March low. Below I’ve updated that list with some additional observations.

(click to enlarge)


The far right hand column shows the intraday runup/drawdown. I’ve circled in green the -$393.90 result from July 31st. Since the trades are based on $100,000 each, $393.90 represents a move down of about 0.4%. What you’ll notice when looking at the list is that the 0.4% drop that day was the smallest intraday drop of any of the 15 instances listed since March 10th. In red I have circled every instance where the intraday runup the next day was less than 0.4%. As you can see of the 15 instances, 7 of them had an intraday runup of less than 0.4%. This is all during a huge rally off the March lows. While it’s just one of the studies I looked at in last night’s Subscriber Letter, this one suggests risk/reward favors the downside for Monday.

1 comment:

vvandymodels said...

Rob

Thanks for this. I too think that the prior days Put Call Ratios can be quite a good indicator for the following day.

But in terms of the medium term picture what do you think of the increase in volume since early July? I have studied the data on volume increases or decreases coming out of bear market lows since 1962.

So far I would say that the evidence derived from falling volume since the March 09 lows is of more importance than the rising volume since early July.

http://vvandymodels.wordpress.com/

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