May 1st marked the short tem high for the 10 day moving average (DMA) of the CBOE Equity Volume Put/Call ratio. Both moving averages, the 10 and 20 DMA's, have been trending downward since May 1st which indicates that option traders' tendency of buying significantly more calls than puts. Historically, the 0.60 level has been an area that indicates a peak in the market that may provide investors a short term selling opportunity. The 10 DMA closed down slightly from 0.617 to 0.615 while the 20 DMA closed up slightly to 0.624. With the 10 and 20 DMA's at 0.615 and 0.624, respectively, the Put/Call indicator is on a Neutral Bias. This signal will remain neutral until the 10 DMA can bounce up and through the 20 DMA. The uptick of the 20 DMA could be providing the writing on the wall that the indicator should be on a Negative signal. But in order to remain consistent, we need to take our bias from where the 10 DMA is in relation to the relative range and the 20 DMA. SIGNAL: NEUTRAL BIAS
Volatility Index Indicator
The CBOE Volatility Index (VIX) is still trending lower after breaking the 33.5 support level from mid-April and January 28th. On Friday, the VIX closed at 32.05, up from its intraday and Year to Date low of 31.19. As you can see from the chart above, both the 10 and 20 DMA's are declining. The 10 DMA (blue) closed at 35 while the 20 DMA (purple) closed at 35.99. While the indicator is on a positive bias, any bounces up to the 10/20 DMA's (since they are so close to one another) can be used to add positive deltas to your overall portfolio's bias. To remain consistent, these indicators are suggested to be utilized as an overall bias for one's portfolio and not for trading purposes. It is essentially a guideline so that you may be knowledgeable of the heard mentality and therefore trade opposite with the "smart money." SIGNAL: POSITIVE BIAS Investors Intelligence Polls
As the chart above illustrates, the Spread (black line) had a sharp reversal upward. This is due to the Bullish percentage of newsletter writers/advisers increasing from 36 to 40.4 and the percentage of Bearish newsletter writers/advisers decreasing to 31.5 from 37.2. The spread between the two polls closed at 8.9 from minus 1.2. That is a 10.1 increase in the spread in one week! Reversals like this generally confirm a change in sentiment that should be traded. The indicator is now back to a Positive signal. However, a close of the spread above the recent high of 9.1 that was established on 4/15/09 would provide confirmation of the positive bias. SIGNAL: POSITIVE BIAS SUMMARY: The overall bias is Positive but not fully Positive due to the Neutral indication from the Put/Call indicator. Robert Ogilvie  |
