Friday, April 24, 2009

A Quick Contrarian Update

Click on Chart to Enlarge

I will probably get another post out later into the weekend if any there are any new indicator extremes to look at, but I wanted to just throw a few things out for now, and show the chart above which is actually as of last week but I didn't get around to showing it.

Last week (trading week ending April 17th) set an all time high in buy to open calls across all US exchanges. To translate.....a buy to open call is a pure directional call option trade that will profit if the market rises. So more than any other time, people are thinking the market will rise from here. That should be a good contrary indicator in and of itself.

However, if buy to open puts rose at the same rate, then you could argue that you aren't really seeing a bullish bias, but just an increase in option buying activity in general. That where the chart above comes in. The put buying didn't even come close to a new record. The chart above shows calls minus puts. So the spikes on the chart are times when call buying to open greatly exceeded put buying to open. Just a quick look at the chart will show what a good contrary indicator this is when it gets really extreme.

Other things of note.....

This morning discussed some recent data showing that legal corporate insider trading is showing the heaviest selling since the peak of the last bull market. Also, insider buying has dried up to the lowest level in years. There are apparently different ways of measuring this type of data, but the indicator used on the site also shows corporate buying at levels corresponding to every peak in the bear market thus far.

Apparently a huge amounts of money are flowing into emerging market ETF's in the last 7 weeks. Obviously this is bullish while it lasts, but the question is whether this should be viewed like Rydex fund a contrary signal typically.

Also, it has been a while since I've talked about an Commitment of Traders data, but the latest data shows that large speculators have the largest net long Nasdaq mini futures position since the bull market peak. This group of traders on this particular contract has a good history as a contrary indicator. The previous bear market high in this data was late Sept. and early Oct. last year. On the same note, large commercial traders have a good history in this contract of being a non contrary indicator. The are net short the same contract to the greatest degree of the bear market. They have basically the greatest net short exposure since the bull market peak. So the "smart guys" are getting short, and the "dumb guys" are getting long to the extreme right now.

The evidence is definitely compelling for a significant pullback very soon. We'll see what next week brings.


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