Short Term Scale - Part II

By: Erik Swarts | Tue, Jun 21, 2011
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Going into OPEX last week options traders had been favoring puts over calls at the widest margin since the bear market bottom in March 2009. During the volatility of OPEX, the CBOE equity-only put/call ratio spiked even higher than the previous week. As I mentioned in my past notes, I typically don't give much weight to sentiment surveys in the conventional sense because traders vote with their wallets and not their mouths. The put/call ratio can offer more practical insight into which posture they are actually carrying.

I tend to gravitate towards data series at the extremes because it washes out the noise. The below chart was constructed with the weekly CBOE equity-only put/call ratio. However, I hid the actual data series and highlighted its rate of change (ROC). As you can see, the ROC over the past few weeks is historically extreme.

Interestingly, when presented as a ROC metric - it exhibited the greatest change since 2004; the time period in which the market digested uncertainty in a sideways fashion as the Fed embarked on removing the historic accommodative monetary policies.

Sound familiar?

I refer to it as the Congruent Market Theory.

SPX and CPCE ROC

More to come in this line of thinking in Short Term Scale - Part III, tomorrow.

 


Hat tip - Stock Trader's Almanac

I just joined Twitter. All my trades and occasional market musings are disclosed in real-time here.

 


 

Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

Copyright © 2011-2014 Erik Swarts

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