OEX PUT/CALL RATIO INVERSION
One of those peculiar inversions is now in progress on the 10-DMA of the OEX Put/Call Ratio, and it is a good indication that a decent decline is in store. Normally, high readings on the Put/Call Ratio signal a bottom, and this is a reliable rule for the CBOE Total and CBOE Equity Put/Call Ratios because high put volume relative to call volume generally means people are getting too bearish; however, the OEX Put/Call Ratio occasionally behaves in just the opposite manner and starts running an inverted pattern compared to the CBOE and Equity P/C Ratios. Such is the case now.
What does it mean? It probably means that smart money is buying puts in preparation for a decline. A lot of Equity and Total put volume represent individual bets against stocks. OEX puts can be used by individuals, but they can also be used by big money players to hedge portfolios and short the index. When I see large participation in put buying that is running counter to equity put buying, like now, I attribute it to the big guys.
If you look at the chart, you will see that the subsequent decline can be large or small, but odds are very high that there will be a tradable top when the OEX Put/Call Ratio reaches present levels.
--Carl Swenlin
CAVEAT: Charts featured in Chart Spotlite are intended as examples of how to use technical analysis, not as trading recommendations.
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