MDA - Market Direction Analysis

[chichi2]

OEX put/call ratio=2.83, Sometimes this is Bullish, however...

Over 2.00 for the OEX Put/Call ratio is very high, as you can see on the bottom graph, it is presently at 2.83.
But the other Put/Call ratios are not so high.
http://www.decisionpoint.com/affiliate/pc.html

This is the highest it has been since July 5, 2002.

And the OEX Put/Call ratio is actually now the highest since the End of August 2000.

However, the Equity and the CBOE Put/Call Ratios are not so very high. If the Equity, CBOE, and OEX Put/Call ratios were all very high it would suggest a Rally was coming.

Since NOW the OEX Put/Call ratio is at odds to the other Put/Call ratios, we have what is sometimes called an "Inversion".

What does this mean? Many many Puts per Calls on the S&P 100 stocks, these are the 100 largest stocks. It can also include many many Puts per Calls directly on the OEX index. And not so high for CBOE and Equity Put/Call Ratios.

Experience shows the "OEX Put/Call Ratio Inversions" to be very Bearish, that there is a tradeable top.

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Here are Two Empirical evidences:

(1) As said, this is the first time the OEX Put/Call Ratio was over 2.00 since July 5, 2002. However the CBOE was not so high: http://stockcharts.com/def/servlet/SC.web?c=$CPC,uu[w,a]diclyyay[d20020615,20021015][pb50!b200!f][vc... These indicators were out-of-synch. The other Put/Call ratios were not so high, there was an "Inversion".

This is what happened. The OEX was at a temp peak that day, and dropped down for 13 sessions: http://stockcharts.com/def/servlet/SC.web?c=$OEX,uu[w,a]diclyyay[d20020615,20021015][pb50!b200!f][vc...

(2) As said, this is the highest OEX Put/Call ratio since the End of August 2000. However the CBOE was not so high: http://stockcharts.com/def/servlet/SC.web?c=$cpc,uu[w,a]diclyyay[d20000715,20001015][pb50!b200!f][vc... These indicators therefore were out-of-synch.
The other Put/Call ratios were not so high, there was an "Inversion".

Note: OEX was at a temp peak that day, and dropped down for the next 17 sessions:
http://stockcharts.com/def/servlet/SC.web?c=$OEX,uu[w,a]diclyyay[d20000715,20001015][pb50!b200!f][vc...

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The following is what Carl Swenlin said of the "OEX PUT/CALL RATIO INVERSIONS" in January 12, 2002.

OEX PUT/CALL RATIO INVERSIONS
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? To me it can only mean one thing, 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

Source: http://stockcharts.com/commentary/archives/cww20020112h.html

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Remember, I am not recommending that anyone do anything on this and whatever you do its your own decision to lose or gain. I am not responsible for your money. And be aware, I can easily be wrong in my stock market ideas and decisions, and lose my assets.