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The rt readers might like to see this most interesting chart, at least to me
it is. Go back to 5/29 as the OEX and other equity indexes were declining.
The exchange composite $C/($C+$P) was likewise dropping to the buy alert
level near 0.30. Options traders are contrary thinkers so as the ratio
dropped to 0.3 they are thinking buy call options or sell put options or put
on a spread(s) because they know the mkt is going to turn around. Then on
5/30 the TRIN and TRINQ peaked, price bottomed. The following morning 5/31
the ratios jumped over 0.5 and the TRINs dropped at the open and remained
there while equities were still trying to make up their "mind" about
direction. Then on 6/01equities start ramping up through 6/05. But, look,
the Normalized $C/$P's peaked on the open of 6/05 and as the day progressed
skepticism of the rally increased and the sentiment balance switched from
the call side to the put side in divergence from the price action. Perhaps
the call buyers were bailing out, and or put buyers were hedging
positions....The TRINS are coincident types of indicators since they are
based on the actual issues and volume. Their extreme levels may be used in
a contrary fashion like options, by doing the Favors 5 day summation, or ten
day average of open or closed trin, etc. The main point right now though is
how the options sentiment can have a leading indication. The glaring
divergence of today that ran from the open to the close will probably have
to be reckoned with on Wednesday. That isn't to say that the current run is
over, but it suggests that the savy options community may be sniffing out a
pullback on Wednesday. Last night I was thumbing through a decade of TASC
and ran across a day of week article. Its conclusion was that Tuesday's
have the strongest and best well defined trends. Wednesday's, well, I need
to look the article up again, had more mixed trends than Tuesday.
bobr
http://www.oextrader.com/sigma_trader
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