EWI is out with a warning piece on investor sentiment. It's focus is on the Equity Put/Call Ratio, which NFTRH has been watching since the 196th issue four weeks ago. As an aside, I can't believe I am about to write the 200th newsletter this weekend. Wow.
Anyway, EWI notes: "The chart plots the 5-day closing CBOE Equity put/call ratio, which declined to .60 at yesterday's [Aug. 9] close. That was the lowest close since May 1 (.58)"
Well, the NFTRH measure is a bit different. We have been using .60 as a target but instead of using the spiky indicator itself, or the not quite so spiky 5 day average, the 20 day exponential moving average is used to smooth out the signal. I mean, who is going to chase the nominal CPCE all around? Talk about jagged.
The smoothed out signal on NFTRH's chart has a way to go before code red - which should come with other indicators falling in line as well. The bear opportunity should be very good and EWI will be right about a market top, eventually.
I find the 20 or even 10 day average much easier to deal with. Here is the 20 vs. 5. It helps one avoid false signals and mental whipsaws. When the EMA 20 gets to .60, risk is likely to be alarming. And who do you suppose will have bought back in to the market by then?
We have an upside target on SPX, a downside target on the CPCE's EMA 20 and a hell of a lot of other indicators that need to play in concert to give a strong bear signal. Meanwhile, the first chart above is one of the tools I used in determining that risk is now rising (see NFTRH199's page 1 screenshot) right along with the ongoing market rally. But as of last weekend was not yet terminal. I look forward to getting to work this weekend because it is only in doing the work each weekend that I feel well oriented.
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Anyway, EWI notes: "The chart plots the 5-day closing CBOE Equity put/call ratio, which declined to .60 at yesterday's [Aug. 9] close. That was the lowest close since May 1 (.58)"
Well, the NFTRH measure is a bit different. We have been using .60 as a target but instead of using the spiky indicator itself, or the not quite so spiky 5 day average, the 20 day exponential moving average is used to smooth out the signal. I mean, who is going to chase the nominal CPCE all around? Talk about jagged.
The smoothed out signal on NFTRH's chart has a way to go before code red - which should come with other indicators falling in line as well. The bear opportunity should be very good and EWI will be right about a market top, eventually.
I find the 20 or even 10 day average much easier to deal with. Here is the 20 vs. 5. It helps one avoid false signals and mental whipsaws. When the EMA 20 gets to .60, risk is likely to be alarming. And who do you suppose will have bought back in to the market by then?
We have an upside target on SPX, a downside target on the CPCE's EMA 20 and a hell of a lot of other indicators that need to play in concert to give a strong bear signal. Meanwhile, the first chart above is one of the tools I used in determining that risk is now rising (see NFTRH199's page 1 screenshot) right along with the ongoing market rally. But as of last weekend was not yet terminal. I look forward to getting to work this weekend because it is only in doing the work each weekend that I feel well oriented.
http://www.biiwii.blogspot.com
http://www.biiwii.com/analysis.htm
Subscribe to NFTRH or
Subscribe to the free eLetter
Signal failed Jan 2011 and Feb 2012. Also, we could be like fall 2009. And the buy signal June 2011 wouldn't have ended well for you.
ReplyDeleteAll in all $CPCE signals look pretty darn random to me.
In your contempt for charts (just like pal Otto?) you are once again speaking as in absolutes.
DeleteWhy do you think I wrote this?...
"We have an upside target on SPX, a downside target on the CPCE's EMA 20 and a hell of a lot of other indicators that need to play in concert to give a strong bear signal."
You don't go by one indicator and go all in.
I'm not against *all* charts, just *most* charts. Price and volume seem to work, along with breadth, and sentiment too. But I'm really getting into this idea of yours about filtering out all noise.
DeleteIf you can validly assume $CPCE is an inverse sentiment indicator, and you've looked under the hood to make sure no weirdness is going on right now in puts and calls that would throw it off, like say the extreme weirdness and contango in $VIX that I just wrote about, then the problem remains that sentiment has a lot of choices for direction right now. Andd they show up right in your chart as the backtest failures.
So maybe $CPCE will go a lot lower if the S&P breaks the April high and goes into blue sky. Why not? Sentiment could become very complacent then. But you don't know where the top in the market will be.
Maybe after the S&P goes into blue sky, the $CPCE will start trending back UP again like it did in Winter 2011 when people felt the market didn't deserve to be in blue sky.
Or maybe once we hit blue sky the $CPCE will instead stay flat, like Winter 2012 when it seems everyone felt the market had a right to go higher. Or it could dive crazy low like Winter 2010 when everyone thought the worst was behind us and everything was going to be fine forever.
See? Different psychological expectations of market participants will cause different behaviour in the $CPCE.
Point of all that is, drawing a line at 0.6 is a way to ignore all the above.
Ah sort like Zen and the Art of Stock Trading. I get it.
DeleteActually, some indicators smooth out the noise, not (in my opinion) add to it. All probabilities my friend. Why do you think I got bullish in May? Sentiment and indicators like the VIX hitting target and our friend the Equity Put/Call ratio here.
It's not rocket science and sometimes being wrong is definitely part of the mix. But that's the thing with probabilities, they are just that.
No one thing is gospel. On that I agree w/ you.
I'm still trying to get into the head of the market. Hardest part is looking objectively at other people's emotions.
DeleteTechnically, a person who can perceive others' emotion dispassionately and feel no fear in the face of danger is a "psychopath", by the way. Just one-a them weird things we've come up with in this stupid world of ours.
Why would you want to get into the head of an utterly manic and maybe even insane entity?
DeleteTo make money you nob!
Delete