Asbury Research Page 3 11/11/2010
OCC Small Trader Buy-To-Open Put/Call Ratio
which appears in the lower panel. As the nameimplies, this data series only includes openingpositions on small option orders of just 10 contractsor less. A bar chart of the S&P 500 appears in theupper panel.
The green and red highlights in the lower paneldefine
extremes by thesesmall investors, according to
the ratio of daily put volume versus call volume
, since 2006. The redvertical highlights between both panels show thatthese investors are currently just starting to moveinto a multi-year
)extreme that had previously either coincided with orled what have arguably been the most importantpeaks in the S&P 500 during this period.WE view this as more evidence,
from a completely different type of investor
, that suggests the Julyadvance in the US stock market is probably in itslatter to final stages without at least a correctivedecline first.
measures investor sentiment according to
stock market newsletter writers
(bulls minus bears, blue line, lowerpanel) data. These investors are notorious trendfollowers just like the investors represented by
Charts 1, 2 and 3
, which means that they are alsotypically the most bullish at market tops and themost bearish at market bottoms. However, unlikeour previous charts, the blue arrow in the lowerpanel points out that these investors are currentlyonly about two-thirds of the way to reaching previous
extremes that have historicallycoincided with market tops, as highlighted by thethick red vertical lines across both panels.Accordingly, unlike the other charts,
these data suggest that there is still some room for more near term stock market strength
before we can expect apeak to emerge.
Conclusion and Investment ImplicationsCharts 1-3
show that RIAs, retail investors andsmall options traders have all reached previousextremes in bullishness that, as a contrary indicator,have coincided with most of the important peaks inthe S&P 500 within the past five years.
,however, shows that market letter writers,
who tend to operate within a longer term time frame
, have notyet reached similar extremes.
Combined, these data suggest that the US stockmarket is probably in the latter to final stages ofits current July advance, but still may haveanother couple weeks or so to go.
We would viewa move into most bullish territory in the InvestorIntelligence data shown in
as an indicationthat a corrective decline in US equity prices is readyto begin.