Other Voices
[Editor's Note: I'm "out of station" on a quick trip to Chicago, so I want to give those on a trial to our service -- and those subscribers who don't go to our web site often enough! -- a glimpse of some of the tremendous market analysis we have available for investors and traders every day here at 21st Century Alert.
Just last night subscribers received the usual great insights from Tom McClellan, whose outstanding Daily Edition is now part of 21st Century Alert, and Jason Goepfert, whose amazingly in-depth sentimenTrader.com is also fully included as part of our subscription package. Below you'll find excerpts from the latest market comments by Tom and Jason, as well as the Sentiment Dashboard from Adam Oliensis -- which has just hit zero! It's a crazy market...Best, David]
From Jason Goepfert, of sentimenTrader.com
Last week, I mentioned that due to the extremely low equity put/call ratios (minus QQQ options) that we were seeing, we would also likely see an extremely low R.O.B.O. (Retail-Only, Buy to Open) put/call ratio. Recall that the ROBO put/call ratio is constructed using buy-to-open transactions only for trades under 10 contracts. This is as pure a contrary indicator as you're going to get.
This did indeed prove to be the case, as the ROBO p/c ratio came in at 0.47, meaning these smallest of options traders bought more than twice as many calls as puts. Perhaps most telling, however, is the fact that these traders paid an average of only $161 per contract for their puts, but they paid an average of $213 for their calls. This is a 32% "demand premium" for calls over puts, and is the most egregious spread since the height of the bubble in August/September 2000.
Also troubling is the priority these traders gave to their various strategies for opening transactions. 34% of the volume went to buying calls, 34% to selling calls, 16% to buying puts and 16% to selling puts. Recall from last week that I said whenever call buying exceeded call selling, the market typically had trouble afterwards, and we're close to that point now. Overall, these traders distributed their priorities evenly among bullish and bearish strategies, which also is a warning sign that the traders who are usually most wrong on market direction are now quite comfortable with the upside here.
For the purposes of a contrary indicator, I prefer to concentrate on the smallest of traders, as they are consistently those who are the most wrong the most often. However, if we cast out our net a bit further and look at all options traders (those who trade under 10 contracts, 11-49 contracts and 50+ contracts), we get a buy-to-open put/call ratio of 0.60. This is the highest number of calls bought relative to puts since January 2002, as all trader groups are showing put/call ratios on the lower edge of their trading range over the past couple of years. This signals that there is broad-based optimism towards a continued price rise in equities.
Today's CBOE equity-only put/call ratio came in at an extremely low 0.38. This is the lowest reading since June 20th. The only other reading in the past three years as low was 0.38 recorded on 8/16/02. If we look at my preferred ratio by taking out QQQ options, then the put/call ratio drops 0.26, a new record low by a wide margin. However, whenever I get such an extreme reading for anything, I like to double-check the information. In checking with the CBOE, they state that they may have an issue with today's data, and have pulled the option totals from their website. When they are able to verify today's numbers, they will post them again. Due to this uncertainty, I would hesitate to read too much into any of the figures at this time.
We now have such a confluence of extreme optimism among such a broad group of traders and investors that our Composite model recorded a new all-time low reading today, dating back to January 2000. Today's single-day reading of 15% is the lowest ever recorded by the model, with second place going to 18% recorded on 3/12/02. This has moved the 5-day average (which is posted to the site) down to 23%, which is tied for the lowest in the model's existence. The argument here, of course (and it's a valid one), is that we are in a different market environment than what we have seen previously.
Without question, we are seeing some signs of speculation that border on mania. When the Rydex asset flows are released tonight, I suspect that we'll see more of the same. I don't think we're seeing enough that it would make sense to short new highs for anything other than a day-trade (if that), so at this point I am still giving the uptrend the benefit of the doubt. However, if we get more manic-type readings like we're beginning to see now, I will be inching up the "stop" levels that would get me out of any long positions. I'm not ignorant of the fact that more and more traders who were once bearish on the market are now turning at least cautiously bullish (such as myself), so we are probably closer to a meaningful top than we've been in some time. Currently, I'm using the widely-watched 1015 on the S&P 500 as an initial warning that a more serious correction may be at hand if it's broken to the downside. If we break 960, the positive market structure that I have been mentioning will be invalidated.
From Tom McClellan, of the McClellan Market Report Daily Edition
We are now at the time of the top we have been expecting, and which we have said was due to arrive Sep. 8-9. Several of the customary components of a top have been missing until now, and the market has been able to ignore the reasons why it should not go up. But now we think it is time for the accumulated reasons for a correction to start to matter.
One of the loudest voices arguing against the up move has been the CBOE's Volatility Index (VIX), shown in our first chart. For the last few years, it has indicated an oversold condition when it goes to a high level, such as the readings near 40 we saw earlier this year, and an overbought condition when it gets near 20. As such, this indicator began crying wolf back in May and has kept up the hollering, even though the villagers have long since decided to ignore this indication.
Monday saw the VIX drop to 18.79, its lowest readings since the market top in August 2000. We are not among the crowd who think that the VIX does not matter any more; we do think it matters, but the market has had to wait for other events to get in gear before the impact of the low VIX could be felt.
One of those missing pieces which has now been provided is a divergent indication in the price indices versus other indicators. A great example is the NYSE's McClellan A-D Oscillator at the top of page 2. We now have what is likely to be a divergence relative to the NYSE Comp, although we have to concede that if the Oscillator goes above its recent high of +188.26 then this apparent divergence would go away. But that will be tough to do, since on Tuesday it takes at least 683 net advancing issues (advances minus declines) just to keep the Oscillator where it is. It would take 1203 net advances to get back up to that +188.26 level, and more than that to go above it. And the longer that the market waits to attempt that assault, the harder it gets.
We don't think it is time yet to bet on a decline, even though we believe that one is coming. With Price Oscillators still rising, and with the Small Cap Growth segment still leading in relative strength, the presumptive trend direction is still upward. And uptrends can continue for longer than people think that they ought to.
It is worth waiting for confirmation that the market can actually stop the uptrend and go down before betting money on the bearish argument. In other words, the risk/reward picture does not justify it quite yet.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: RED ALERT, the tank is at 0% full of negative sentiment. It's empty!
SHORT-TERM: Hourly gauge is in an advance phase.
MID-TERM: Rolled up by 5 points to 74% in its advance phase with Confidence rising to 3 (out of 7).
LONG-TERM: Progressed 3 points to 98% in its advance phase with Confidence rising to 3 (out of 7).
BOTTOM LINE: In all 3 time frames the MOMENTUM of sentiment has turned solidly bullish. However the absolute level of sentiment is now so pervasively bullish that, relative to the past year, it should be considered a total consensus. And that is a dangerous condition for the bullish case.
Now, it is POSSIBLE for the market to progress with the tank at 0% if new money is flooding in from the sidelines. That would be bullish longer-term but would very likely be an exhaustion rally in the short-term, and would probably be followed by a pretty-sharp snapback down.
Our trusty Put/Call Ratio 5-dma line (which called for the most recent rally among others) is near exhaustion.
As you can see, dips down on the magenta line below 0.70 on the above chart correlate pretty well with short-term tops. So, while the Stochastic downturns of almost all the indices we examined in this weekend's Closing Bell got blown out of the water on Monday with the indices moving to new highs, we're still looking for a short-term test down toward the breakout level of SPX 1015 (horizontal red line) or to the 1007 area (oblique red line) before much significant continuation to the upside. (Especially with the tank at 0%.)
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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