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Is The Highest Equity Put-To-Call Ratio Since S&P 666 An Indication Of A Market Bottom?
Last Friday, the CBOE Equity Put/Call Ratio reached the highest level in the past two and a half years, higher not only than May 2010 when the market plunged on the first Greek bankruptcy, but higher than March 2009 when the S&P hit 666, and lower only than the second week of January 2009. Additionally, while this one off event may be discounted, the 10 Day Moving Average, as shown on the chart below, has now lifted to levels not seen since February 2009. A quite note by Stone McCarthy captures the conventional wisdom on the topic: "Where a 1-day rise in this indicator alerts us to investors temporarily seeking protection against a market decline, an extreme high by the 10-day smoothing line reveals a more comprehensive sentiment buildup that typically proves to be a more reliable contrary indication of a meaningful bottom being NEAR." Perhaps. However, never in the past has the Put/Call ratio been at such levels even despite the multi-trillion backstop of central banks, and worse still, just two weeks in advance of when the Fed will end its daily stimulus program. The is a saying that being contrarian in the face of conventional wisdom is the only sure way to make money. The problem with that saying is that conventional wisdom is quite often actually correct. Furthermore, last time we checked back in January 2009 Greece and Europe were not about to go Chapter 11, nor was a $900 billion asset purchasing program about to end...
More technical observations from SMRA:
The series of recent new highs by this indicator warns that market participants are still in the process of building protection against downside expectations in price. Therefore, the threat of a more cathartic end to the post-05/02/11 price decline remains real. With the benchmark equity index still locked in a C-wave decline (se chart), risk will continue to favor a better test of the all-important 200-day line at 1262.80, the 2011 low (the 03/16 pivot) of 1249.10, rising trend support from the Mar '09 lows near 1239, and, in a worst-case scenario, a 161.8% extension through 1215 as long as 1311.20 remains resistance.
Are options traders actually correct this time? Next Tuesday, which is when the Greek cabinet vote of confidence takes place, may provide a quick answer.
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Gravity is always left out of the equation. The market is being sucked downward, ever downward as the pyramid discovers it has no more grains and nuts to hold up the ponzoni of a balanced diet.
I gambled some calls on RIMM today $30 strike. Join me if you will. Surely this cant go to zero...LOL
I would rather buy shares at $27.75 than do that.
In these times, buying stocks in whole could be disastrous in a full on collapse and placing protective stops only paints a target on your forehead... just saying.
Plus I wouldn't be surprised any more if the internet was taken down due to a "glitch" during a complete stock market wipe out. Don't even think about trying to phone your broker during such an event either. Options ain't so bad given all the risks lurking in the shadows.
brokerages have precious few brokers available to take phone calls nowadays. Damn. Scary thought. Better be short before the cataclysm. I can easily envision nobody having access to their brokerage accounts.
Take out the cash and it's trading at just under 4X earnings...Your call is good because the companyt is real. This is no Nortel...
The correct answer is, N.......O.............NO!
But they have not yet run out of cotton/paper and ink ... which actually are not even necessary. The supply of "electronic" ledger entries is unlimited. And there are so many ledgers.
And they wear big hats and there are plenty of rabbits about this time of the year.How many zeros is the only question. It worked for Zimbabwe!
I still think we go lower, I haven't seen any recovery yet.
all depends on China.
if China starts to crumble, shows signs of fatigue or more fakes and frauds are exposed.. it can and will go a whole lot lower.
at the same time margin is near oct. '07 levels. sometimes fear is justified.
my gut tells me that people are margined to the tits again because they are reluctant to abandon their core long positions due to expectations of more FED monetary stimulus, and are therefore using margin to hedge a more significant downside move. this would explain the high margin levels and the put/call ratio occam style.
my feeling is that they need protection. The move higher has largely been fueled by margin. It isn't the banks balance sheets that are bloated, it is the hedgies. If this thing goes down some of them are up the freaking creek. The worst part (for them) is that as long as they keep buying puts the market won't go down but minute they stop...
agreed, but the reason that margin and the put/call ratio are so high right now is because everyone wants to call the FED's bluff but cant do it without protection. the FED needs the people to be begging for more QE to do another round, and there has to be pain for that to happen. this selloff does stink of something that has been managed rather than an organic selloff. it just doesnt have that "elevator" feel to it; its more like the stairs in reverse, which i think is indicative of the lack of fear out there. the FED has to come to the rescue again, because if they dont, their entire policy stance since QE1 will be an epic fail. the FED is boxed in - they need genuine fear before the next round of QE to mute the inflationary impact of further monetary stimulus, but they have shown their hand, and we all know they are drawing on an inside straight. hence the need for protection - will the FED wait for the real fear and risk a loss of control, or will they throw in the towel and initiate further monetary stimulus before things get as ugly as they would like? answer that correctly, and you can position yourself to make a killing in the next few weeks...
The put call ratio is confusing but I am still bearish. MArgin being high is encouraging and the increasing intraday vol seems bearish to me as well
the reason that margin and the put/call ratio are so high right now is because everyone wants to call the FED's bluff but cant do it without protection...
Agreed. The coincident timing with the end of QE2 is no coincidence. The fed has lost all credibility as far as no more stimulus.
dollar was down today and oil was still getting crushed. Hedgie morons are getting killed. Nothing but pain ahead for them!! Cue the impending deflationary vortex.
"your gut" is telling you this, or perhaps what zh has been posting repeatedly has sunk into your subconscious mind.
fah-q
double post
I know most people laugh or junk any mention of Elliott Waves but check out Dan Eric's chart for today. I think the second C he has shown is correct.. IOW, we have one (and IMhO only one) more leg up. Armageddon is coming but not for a couple months.
this "orderly" selloff is a ruse. Nobody believes bond rates will be allowed to skyrocket, nobody (that matters) believes that a stock market decline will result (or be allowed). Until the fed is abolished and the pension funds become long term net sellers the markets will levitate.
As for pension funds selling, you just watch how fast they hit the sell button this time after going through what they went through in 2008-2009 [and I would suggest that has already begun in commodities]. That memory will be powerful. Additionally, inflows into pension funds will be slowing with the slowing economy, so there will be a lot less cash to float that end.
On bond rates, that entire market is currently Federally synthetic. If real buyers of debt are eventually sought, rates will have to rise.
You are right about one thing...this orderly sell off has yet to get disorderly. But it will.
pension funds are "dumb money", always have been, always will be. They never, ever, sell anything until it is worthless. Buy Enron at 50, hold until worthless (or $2 if the move is slow enough. I wish you were right about them cashing their chips at the top but it. ain't. happening.
HYG had a brief moment of panic selling late Thursday. Could be a harbinger of things to come
I did not mean to suggest that pension funds sold at the top. Rather, I am suggesting that they will be selling into a bidless and falling market, the catalyst for the less than orderly part of the market decline.
sorry, i put words in your mouth there. pension funds buy stocks. it's what they do with the money they get. that's why they are easy prey for wall street. if it weren't for the constant bid coming from the "never learn" people (actually corrupt pension fund managers and politicos) wall street wouldn't even exist. the day pension funds go to remove funds is the day, as you say, the market goes bidless. until then they are just easy meat for the birds.
I don't mind Elliot Waves as a backdrop, but it doesn't factor enough extreme manipulation and intervention. Not wrong, just early.
Dan Eric is a permabear. He also is a paper trader since he lost all of his money top calling in Spring 09. If he thinks there is another leg up then the TOP IS IN BITCHEZ!!!
plusone (dot)
Elliott waves are perfectly fine. Keep using them. With Osma and Boli bands!
Nor had we the third largest global economy decimated by earthquake and radiation plumes. Nor was their political opposition to a debt ceiling raise which predetermines American austerity for the first time in the nation's history [or at least that last 40 years]. Nor did we have $14.5 trillion in debt on the federal books. Neither did we then have so many states with funding problems due to broken budgets. We also did not have $1500+ gold. In 2009, we had not shut down our entire deep water oil drilling industry. We didn't have the pesky MENA problem.
You know, the situation now looks very, very different than 2009...with one real similarity...insolvent banks and criminal bankers shaking down the system and the people.
So let the conventional thinkers take the put/call ratio as a buy signal then. That will give every Average Joe out there the chance to get on the Retire in Two Weeks plan by selling conventional wisdom.
Look at the P/C ratio over a longer time frame, especially in the period leading up to the market collapse in late '08.
In early '07 we had a huge spike....higher than now.
In Aug. '07 we had a huge spike....higher than now.
In Jan and Mar. '08 we had huge spikes....higher than now.
In Jun/Jul '08 also a huge spike....higher than now.
Then---CRASH in the fall of '08.
My takeaway, the $CPC is a fairly good short-term trading signal. And given that equities are arguably oversold in the short-term, the much anticipated "bounce" is certainly to be expected.
But after QE2 ends (100% certain to end by July) and with the Greece/Eurozone fuse lit (50% probability of exploding between now and July 31?), today's $CPC reading will be meaningless in terms of what happens in July and August---just as the 2007 and early 2008 spikes were meaningless in terms of predicting the collapse that followed months later.
I really don't think the market will wait for these things to happen before tumbling. The market has already demonstrated amazing short sightedness...and is now in the process of being fitted with corrective lenses. On the day that Greece defaults, it will be hard to find a bid. As folks have constantly and dubiously noted that the market can rise on low volume...no problem...so too does the inverse knife cut both ways.
The selling has begun while there is a bid. As for whether or not HFTs bounce the market, this will not matter as those bounces will be sold into. Just look at where the S&P opened today...and where it closed.
Good luck with your plan to wait for the last day to buy tickets to the Plunging and Screaming part of the market show.
thanks for the longer perspective boston; i was wondering just what you answered.
agree it's just a short term signal. Combine with the recent $tick data are we are due for at least a small bounce of some form. But that's all one can predict given backtesting.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s208587727]&disp=P
note the top of the chart.
LOL, anyone who draws conclusions from put/call ratios alone needs to have his head examined. Stocks dropped another 25% after January 2009. When the institutions own the puts in fear for their lives, the put/call ratio ain't a contrary indicator. Too funny.
No fucking way.
Now excuse me, I'm off to have my head examined.
Those fellas over at Leap are surly banking on EU default, complimented by a IMF bailout via US taxpayer. Just the way I read the tea leaves.
http://www.leap2020.eu/GEAB-N-56-Special-Summer-2011-is-available-Global-systemic-crisis-Last-warning-before-the-Autumn-2011-shock-when-15_a6679.html
Meg Lundsager can answer any questions you have.
http://www.imf.org/external/np/sec/memdir/eds.aspx
Dear Atomizer,
From Geab as you cited above: "
The detonating mechanism of European government debt
The Anglo-Saxon financial operators have played sorcerer's apprentice for the last year and a half and the first headlines in the Financial Times in December 2009 on the Greek crisis quickly became a so-called "Euro crisis". We will not dwell on the vicissitudes of this enormous chicanery with a news item (8) orchestrated from the City of London and Wall Street, as we have already devoted many pages to it in a number of GEAB issues throughout this period. Suffice it to say that eighteen months later the Euro is doing well while the dollar continues its downward spiral against major world currencies; and that all those who bet on the collapse of the Eurozone have lost a lot of money."
I have asked on this forum for evidence that the Euro is weaker or on 'parity' with the dollar once or twice before, as claimed in 'opinion pieces' here and elsewhere, and never had any reply to the question. Perhaps you might be able to enlighten me on this: it seems to me that the GEABers are more certain on the strength of the Euro and more committed to a common currency than are we regarding the dollar.
I don't have a horse in the race, I am just curious----thanks.
Oldman,
When the dominoes begin to fall, Global Dow will replace everything. It'll in fact become the next ponzi scheme to be short lived, yet luring new investment market proles.
Atomizer,
Thank you so much for a response. i do not understand what it means, but I am patient and willing to wait until it manifests itself.
I probably shouldn't even be allowed to be here with you dudes----i'm a dinosaur left over from the 70's and 80's when bankers measured risk and reward rather than their bonus arrangements. It was another world.
I think levered ETF's skew this data on a historical basis.
TNA for example was 40% higher than average volume ending .33% higher on the day (should this infer investors are perhaps bullish?)
Puts & Calls are in many cases being replaced, there's no need to be concerned with theta, and simplifies delta hedging.
That's how I see it.
...replaced with?
...leveraged ETF's (particularly the 3x variety)
perhaps instead of buying calls, investors buy TNA, and instead of buying puts, investors buy TZA.
re-read my post....take two.
/also reduces theta exposure as you can hold it forever (although most levered ETF's are derivatives of swaps) so reading the prospectus and understanding the instrument is key....as well as the underwriters counterparty exposure.
Or some do what I have done...
Buy dozens of SDS and DXD call options. Then we still worry about theta but are able to capitalize on synthetic leverage upon leverage with the only downside the price of the initial bet.
Some times you just have to roll the bones. Since I am in the profit range already, the dice are playing out nicely. I put chips on red (no QEIII right away) and its paying off.
Normally not my syle to set aside what I call very high risk capital for such a large option bet but the reward/risk was too juicy. I already took the initial bet off the table so now I have a free ride.
"The problem with that saying is that conventional wisdom is quite often actually correct." Not often enough though.
"just two weeks in advance of when the Fed will end its daily stimulus program"
I don't care who you are, that there is funny!
It's amazing to me that in our screwed up society -- the stock market is supposed to pay for everything. Pay for our retirements, pay for pension obligations. Pretty much pay for everything long term. Yet, common stock has very little real value. Most stocks pay a pittance in dividends. So what does stock ownership "get you". Not any real voting rights. Not much for dividend payments to compensate you for your ownership. Basically, a stock certificate shows you've got some "honorary" ownership. Doesn't matter how profitable a company is...common stockholders get nothing. AAPL at $320 "gets you" the same as AAPL at $220, $120, or $20 per share. A certificate showing honorary ownership. Why anyone pays any real money for an honorary certificate stupifies. It's just a cultural thing. Invest in stocks, it's what people do. I have a feeling it's going to end up just like investments in beanie babies. People will ask "What was i thinking". They weren't thinking. Just herding a cultural trend.
I have often thought that.
I am partial to wisdom tree international and emerging market small cap high dividend etf's.
I like to invest in things that are cheap or have a high cost of capital in my long term, nonspeculative accounts. I havent lost anything to keep a proper usa weighting in an international portfolio overweight in small and midcap value.
just don't be the last guy holding the bag of honorary certificates! It's a game - not an investment.
Good words. A middle-class man's rough road to (typically) rags instead of riches.
Really?
We have a huge industry completely devoted to pushing the message that the stock market is the best source of long-term investment gain, and a government complicit with that industry which subsidizes the market by providing huge tax incentives to people for the sole purpose of buying stocks and bonds preselected for them by the financial industry.
There can be no mystery why it happens. If you structure society in such a way as to encourage certain behaviors, well hell yeah, you'll get more of that behavior.
A more apt question is: why structure society in such a way?
There's no benevolent organizer of society... it's just a game to see who can grab the most. CEO's have become enormously wealthy selling the millions of shares to the chumps on main street. Millions of jobs exist just to service the game.
I didn't suggest there's anything "benevolent" involved.
The actions of thousands (or millions) of people to shape the way others behave has pretty obvious effects, though.
volatility in markets last 12hrs was/is indicative of major bear signals. greece will be the pre-curser, there is nothing germany, france can do, nor the ECB. there will be a partial default.
I dont think so.
No matter what the outcome of talks everyone will declare victory and the next loan installment from Germany will be delivered to Greece.
The one after that is more problematic.
German banks "voluntarily" extending the maturity of greek bonds they own technically wont count as a default.
Depends on who you ask; JC Trashy says the short-for-long swaps is legit, but Moody's and S&P have mentioned that scenario and credit event in the same breath.
Timely payment in full used to mean something.
I miss that Blue Hellmut (sp;) Intended. YEN!
Here's the closest one...
http://en.wikipedia.org/wiki/Hellmut_Fritzsche
GJB's and rating agencies. What a blunder, 777. I feel for you!
Japanese Government Bonds. (JGB's) Kampo and BoJ.
Yen
be a partial default...point is germany nor france will be able to lower CDS spreads. so one way or another funding costs will still blowout for the EZ. they will need to allow debt greek writedowns, german banks have a huge influence on the merkel govt.
So huge, there may no longer be a Merkel's Urkles.
http://www.youtube.com/watch?v=ayE6Shlv598
You might want to hold off there on that one.
If Greece defaults, then I bet the markets stage a huge rally.
If more of the same "discussion" and "angst" continues, but no default occurs, then the market will continue to grind down and down like Chinese water torture.
Funny how guys are already buying bank stocks now in anticipation of a major rally.
There you are.
Havent seen you in a while.
I thought you must have taken my advice and signed up for ashley madison and a couple of cougar dating sites and you were too busy.
Seriously it is a lot of work to get two or three, but after you get them maintenance costs and texting time are low enough you will still have time to hedge. Trust me!
Minus that JUNK!
Nice thinking, Robo
Well, I don't know diddly about "indicators" but it's common sense (to me) that since the market is rigged, all the old "rules" don't mean shit. I got a question. Look at 10-day of DOW, with nothing but a series of highly visible and blatantly obvious pump-and-dumps, and tell me which TA indicators "apply" to that scenario.
it's all LEVERAGED traders playing in the market...the pumps are just short - covering. Look how quickly it rolls back over.
[Well, I don't know diddly about "indicators" but it's common sense (to me) that since the market is rigged, all the old "rules" don't mean shit.]---cosmictrainwreck
Cosmic, I think your "common sense" serves you well.
IMO, we're in the End Game whereby the last few high-end players are eking out their last profits using the last few means (legally and illegally) of doing so.
Insider information is critical at this stage. Becoming available to fewer and fewer select individuals as the elites compete for a shrinking piece of the pie.
FA is gone.
TA is gone.
A Great Depression is unfolding. Curiously, so few people can see it happening.
s&p at 666........things that make you go hmmmmm
Dangasaurus maximus?
Tyler,
You are making conclusions based on flawed information. Any "numbers" that are generated while the Fed is monkeying around the system are likely to be hazerdous. Assumptions and theories are like a guy with five bucks in a strip bar, no matter how many dancers he still only has five bucks. Good luck, and I would be more worried about what you don't see the left hand doing.
Hi, long time listener, first time caller. Remember back in 9/08 Dow drops 777 (big headline, like half the front page), then S&P 666 a few months later. Hmmmmm....indeed. All I'm sayin' is if you have all the money in the world, why not nail two boards together and call it holy. I think they are a lot freakier than people give them credit for. Just sayin.
Hell ya! Forcing coitus on nigruh maids was a dead give away to their superfreakiness.
btw...it wasn't rape because she liked it - DSK
I'm not a scaredy cat - bought like crazy today and don't give one iota whether the market crashes next week or not. Stocks are waaay oversold and I love bargains. Don't believe all the negativity.
bargains?! on what basis?
Ever heard of "Risk off Friday". Posistion covering?
Oh the old buy on friday, sell on monday trick...LOL
"Bought like crazy and don't care if the market crashes next week".
P.T. Barnum was so right. Amazing!
Folks, go to indexindicators dot com, S&P 500 vs Equity Put-Call ratio, 3-year chart. Smooth it over whatever period you want (I take 20 days). August 2008 levels were higher than now (and the S&P then was above 1,300). So yes, put-call-ratio is at elevated levels, but that does not mean that market cannot go down 50% from here. Same for AAII investor sentiment. Also was very bearish in August / September 2008. Didn't help. Someone HAS to hold the stocks. Don't believe the "cash on the sidelines" nonsense. If I have "excess" cash, and want to invest in the market, I buy stocks from someone else. Now he has the cash. Overall cash remains same. It does not go away.
+1
If Greece goes down, then as Ackermann 'promised', a lot of other dominoes will go down....the shock wave hitting US via the money market route over the Atlantic. Expect a big financial tsunami then.
Have a good weekend.
Smack that bitch up. Please.
options are often used as insurance anyway. When you purchase insurance - you fully realize you probably won't recover the premium. This is a world experiencing big time extremes. At extremes - a contrarian, sentiment investment strategy gets you creamed!!!
A good chance the FED and TPTB are watching charts and goose'ing them, and would love to sucker in some contrarian contrarian contrarian's.
My CPC chart. Looks like she'll want a divergence before the market truns - if history is any indication. It is at Bull market highs for sure. CPCE is also thru the roof.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3186525&cmd=show[s161053055]&disp=P
Of course none of this even matters without QE3. I believe we are set up for one of the worst months in history in July. (a)no qe and b) they need to create fear to get congress to approve the debt ceiling without much of a fight. Call it another form of blackmail or the we told you so so approve what we want or we let it all go.
http://www.reuters.com/article/2011/06/18/japan-nuclear-idUSL3E7HI00M20110618
110,000 tonnes of highly radioctive water is a stored at the plant. If another earthquake were to hit, all that water will be in the pacific.
Put everything into physical gold and turn off the computer
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Tyler calls a good SPX chart! That channel is good and that Williams curve (c) move is tapping the bottom.
Bought some SPY puts last week for shitz and giggles... w/ no POMO momo and such great news lately...not.. who is going to step up to buy the dips?
Bought some SPY puts last week for shitz and giggles... w/ no POMO momo and such great news lately...not.. who is going to step up to buy the dips?
Buy the dip Mr-T.
but tyler....a bottom...now? what would that do to your crash cum qe3 theory????
Qe3 is green and Sun Spots (AKA) Al Gore, are TOAST!
May have bought our ignorant ape asses some time to sufficiently aggregate our fecal matter!
We have only one god, and he is the sun god, Ra Ra RA!
First time poster long time lurker. Love the site. Waiting for the other proverbial shoe to drop and flatten europe. It'll be interesting to see who exactly is holding that steaming pile of poo and who wrote the cds
Hang on. Weren't you saying a month ago that Bill Gross was on the wrong side of the QE3 bet? And now the asset purchasing program is about to end?
Now I'm confused. Is it:
1) QE II ends, liquidity dries up, equities markets go bidless.
2) As above, but following the carnage the debt-ceiling is raised and "QE Twist the Short (and Curly)" end of the yield curve begins (2 or 10Y?), status quo resumes, commodities go up, greenback goes down, cycle starts again.
3) June 29, debt-ceiling raised, QE 3 announced, Bill Gross decides he's had enough of the bond market, figures if you can't beat em, join em, and goes full tilt into equities.
?
Everyone is assuming that only the Fed is juicing the markets. Why can't it be someone/something else pumping them? Like other central banks? China, Japan, ECB? I'm not saying it will work for the long term, but they really only need to pump up equities until QE3 time. The trick is how do they cause a collapse in silver/gold/oil while keeping the SPY above 110? Huge margin hikes might be that answer. But if the Fed or other CBs are in control of the market, as everyone (correctly) assumes, why can't they simply sell oil, silver, and gold and plow into stocks? The paper price is all that matters in the short run, and if they can push oil down to around $75, gas down around $3/gallon people won't complain and then QE3 can go off, who cares if oil hits $120 or $140, we've seen that before . And in the meantime there can be any number of false flags to justify it. Another war, terrorist attack, presidential scandal, assassination, natural disasters, who the fuck knows what they have up their sleeve. They can also simply blame the weather, shorter work weeks, or set up Bernanke as the fall guy. Tons of options.
When the rules change, all prior indicators can be wholly useless.
All things between time periods, are not equal. Especially not now.
S&P500 weekly chart shows a rising wedge enclosed within a megaphone top.
Be careful folks.
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