I’ll See Your WTF-Pattern and Raise You…Cindy Crawford!
(12 votes, average: 3.92 out of 5)
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What? Â This doesn’t make sense to you?
Don’t worry about it.
(But feel free to check out a few more of Cindy’s greatest hits ovah heah.)
I, for one, welcomed the WTF-pattern with open pursestrings as it validated the majority of my holdings and allowed me to take decent profits in a couple names. Â Of course, as it drove the prices down, it triggered a few more put buys from my laundry list yesterday…I ended up opening 4 more bearish positions near the close, to add to the 4 triggered in the morning. Â All-in-all, I’m about 20% exposed (which is sizeable) with a working put:call ratio of roughly 1.5-to-1:
Tomorrow, I’m looking to continue the same via potential puts in APA (@100.), CF (@91.75), EOG (@94.50), HPQ (@48.), JWN (@33.60), SYY (@27.) and a couple tech calls with FCS (@9.13) & NOK (@13.50).
$CPCI WATERSHED MOMENT?
The indicator’s struggles continue, as I booked yet another loss today in the Nov’09 110. calls from Tuesday. Â It’s been rather hit-n-miss with this thing since September as it has seemingly become better at predicting actual direction instead of being contrarian as one would expect.
It is worth noting that the last time it was this wrong this often was last October, just before the final leg(s) to the 666-bottom.
In any case, tonight’s reading was a whopping 2.06, which is at least 2 std.deviations above the mean so a very clear, contrarian long signal. Â So, in the name of hedging some of my puts, I will be purchasing some SPY Dec’09 109. calls at the open.
QUICK $VIX NOTE
Understandably, we had a nice “gain” in the $VIX today, although it is still near yearly-lows. Â In fact, earlier in the day it made a fresh 14-month intraday low. Â This makes Wednesday the 13th trading day in-a-row (so almost 3 weeks!) that the $VIX has either closed lower or at least made a new intraday low.
So, what I’m trying to say is that we shouldn’t be all that surprised that some volatility/selling/WTF-action makes an appearance or two…especially on VIX-options-expiration day (yes, these stupid things do expire on Wednesdays).
I find Put/call charts the most powerful indicator. First thing I review before looking at TA but the price action obviously leads the P/C.
but here is my undertsanding of the use of ratio normally. Say bullish as you state above the ratio of puts seems exagerrated I agree but as I said normally I wait until the indicator begins to turn downward as the stock breaks out back into uptrend. IOW’s confirming that the put buying( bears) usual wrong crowd has exhausted their buying power. The charts are still breaking down and if you look at a broader range of stock say all NYSE you will see the put/call rations still at the low ends not confirming this sort of move in the same indicator you used $CPCI.
Lastly we dont know if OTM puts and heavily weighting that chart or in fact it may turn out that it could be legitimate. This has happened in the past just before major sell offs but hey we are still too bullish to accept that possibility at this point.
With the ratios charts i have been following they show the ratio at the lowest end for most charts. It would seem we need to drive much higher to keep pushing them down. Mytake is they are at their yearly lows and the bulls are exhausting themselves that it can only move up to confirm your numbers above 2.0 reading is a bearish flag.
I just took a tiny long position in Nov 109 calls at 2.06.
SPY long is working out well today; the rest of my holdings not as much.
Thanks, NUE, for the shitty earnings, yet again. Retards.
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@AndoZork:
Thanks for the excellent comment.
I agree with you completely that in a longer timeframe, higher put/call ratio readings are bullish. There’s no doubt about that. In fact, the shorter-term averages on the $CPCI (index put/call ratio) have been trending up since about mid-July (and the 1-mo. average even since mid-March), while the yearly s.m.a. has just about bottomed now.
All of that supports and corroborates with this massive rally that we’ve had.
However, I’m looking to trade just the very immediate action in the indicator, based on the theory that anytime something swings too far wide, it is more likely to revert to the mean. It’s the same idea to trading based on oversold/overbought, or selling the market when the overall PPT-score rises to 3-something.
Extreme 1-day put buying (whether it’s OTM or ITM) screams “panic” and more often than not, it turns out to be undue panic.
Of course, there are always those days when the panic turns out to be justified…