Put/Call Open Interest Ratio Approaching Resistance
By
Rennie on Sunday, April 19th, 2009 at 7:49 pm
Volatility indices closed in technically oversold territory Friday. The Nasdaq Volatility Index closed under its lower bollinger band for the second day in a row, and the VXO followed suit with its own close under the lower band. As I discussed in my April 12th column, when the VXO last closed under its lower band, “While not quite accurate enough to be considered a sell signal, note that in the majority of cases this setup has translated into limited upside potential over the next few sessions. In only three cases out of thirty, or 10% of the time, was the OEX up 1% or more three days later, while it was down 1%+ a total of eleven times.”
The put/call open interest ratio for index options is challenging a key area of resistance around the 1.30 level. Historically, this has been a significant area to watch, with readings above 1.30 coinciding with bullish periods for the market and readings below 1.30 relating to bearish periods (see long-term chart). Note that the ratio repeatedly ran into resistance around the 1.30 level in 2008. We’ll need to see readings persistently above 1.30, preferably above 1.35, to turn this indicator bullish.
Other longer-term indicators are also in the process of challenging key resistance. As I mentioned Thursday, the cumulative version of our TICKscore indicator is challenging its January highs, the first time in quite a while that we’ve even seen a challenge, much less a break of a prior high. It still needs to gain over 90 points from current levels to break that high. The 200-day moving average of advancing volume minus declining volume also moved to a nine-month high Friday. Note from the long-term chart that while the average has moved sharply higher over the past month and a half, it still has a ways to go before crossing into bullish territory (above zero). That pretty much sums up the outlook from many indicators. Definite signs of improvement, but clearly too soon to label the ‘big picture’ outlook as bullish.
Put/Call Open Interest Ratio Approaching Resistance
By Rennie on Sunday, April 19th, 2009 at 7:49 pmVolatility indices closed in technically oversold territory Friday. The Nasdaq Volatility Index closed under its lower bollinger band for the second day in a row, and the VXO followed suit with its own close under the lower band. As I discussed in my April 12th column, when the VXO last closed under its lower band, “While not quite accurate enough to be considered a sell signal, note that in the majority of cases this setup has translated into limited upside potential over the next few sessions. In only three cases out of thirty, or 10% of the time, was the OEX up 1% or more three days later, while it was down 1%+ a total of eleven times.”
The put/call open interest ratio for index options is challenging a key area of resistance around the 1.30 level. Historically, this has been a significant area to watch, with readings above 1.30 coinciding with bullish periods for the market and readings below 1.30 relating to bearish periods (see long-term chart). Note that the ratio repeatedly ran into resistance around the 1.30 level in 2008. We’ll need to see readings persistently above 1.30, preferably above 1.35, to turn this indicator bullish.
Other longer-term indicators are also in the process of challenging key resistance. As I mentioned Thursday, the cumulative version of our TICKscore indicator is challenging its January highs, the first time in quite a while that we’ve even seen a challenge, much less a break of a prior high. It still needs to gain over 90 points from current levels to break that high. The 200-day moving average of advancing volume minus declining volume also moved to a nine-month high Friday. Note from the long-term chart that while the average has moved sharply higher over the past month and a half, it still has a ways to go before crossing into bullish territory (above zero). That pretty much sums up the outlook from many indicators. Definite signs of improvement, but clearly too soon to label the ‘big picture’ outlook as bullish.