Option Investor
Trader's Corner

The Contrarian

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I want to take this opportunity to clarify something that was recently brought to my attention. The signals represent the directional bias of each of the contrarian indicators. I have already done the interpretation of the data and am presenting my findings. For instance, a Positive Bias is suggests that one lean their portfolio in that direction. When the CBOE Put/Call ratio is near a low level like 0.65 it is suggesting that the trend in option trading is toward more call volume. Calls are generally bought and are indicative of bullish speculation. Therefore, if more and more traders become bullish to the point at which it reaches an extreme, which become a bearish signal. That paradox is the contrarian indication. I am just reading the tea leaves here. So when I change the signal I have done the interpretation of the indicator and the action is up to you. I hope that helps.

The Put Call Ratio - 10 & 20 Day Moving Average

The CBOE Put/Call ratio closed today at 0.827. However that wasn't enough to push the 10 day moving average (DMA) of the CBOE Equity Put/Call ratio up. The moving average has continued its sharp decline toward oversold territory. At about 0.65, the 10 DMA is at high alert for becoming a bearish signal. The 10 DMA is at 0.691 while the 20 DMA is at 0.767. The interesting thing to note this week is that the decent of the 20 DMA has slowed a bit. Since the indicator did break the level noted in last week's newsletter ("In the future, a break below the recent low should be considered a reaffirmation of the previous signal. In this case that means making it a positive bias. As of the close on Thursday the 10DMA is near the 2/25 low of 0.73.") the indicator remains positive. I will send out a revision should the 10 DMA tick up. SIGNAL: POSITIVE BIAS

The CBOE VIX - 10 and 20 Day Moving Average

While you can't see it on the chart above the $VIX.X has been trading just below 20 for about a week. It set a low of 19.18 and moved above 20 to 20.24 as of the close on Tuesday. The down trend is alive in the $VIX.X which just continues to confirm the Positive (Long or Bullish) bias. The CBOE $VIX.X 10 DMA is currently at 20.22 while the 20 DMA is at 21.55. A move above the 20 DMA in the $VIX.X might be a cause to go neutral. I will keep you all posted. Also as I have been saying for a few weeks now, the signal should go negative when the 10 DMA crosses above the 20 DMA. Both moving averages are still moving lower which keep the signal at a positive bias. SIGNAL: POSITIVE BIAS

Investor Intelligence

InvestorsIntelligence.com provides the percentage of advisors that are predicting a bullish, bearish and corrective market. Historically, Bullish% extremes of 55% and higher are considered to be signaling an overbought market while Bearish% levels above 30% signal an oversold market. The Spread signals the absolute extremes in sentiment.

The Signal: The percentage of Bullish newsletter writers increased 1.8% to 40.9%. The percentage of Bearish newsletter writers decreased 3.8% to 31.8%. The spread widened even further to 9.1% thus confirming the Positive (Bullish) bias. SIGNAL: POSITIVE BIAS

Robert J. Ogilvie

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