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Risk Windows and Don't Get too Sentimental


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#1 Douglas

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Posted 30 September 2023 - 06:51 AM

According to my risk summation system, the days in the next week or so with the highest risk of seeing a turn in or acceleration of the current trend in the DJIA are a window extending from the afternoon of Monday October 2nd through Tuesday the 3rd and another window reaching from the afternoon of Friday October 6th through Monday the 9th.

 

Last week the Monday - Tuesday risk window was just in the middle of the down trend, no turn of any consequences, no real acceleration down, so a dud.

WXtWo9s.png

 

Sentiment has turned downright bearish with the AAII and TSP surveys reaching levels that have tagged rallies in the recent past.  The four week average below is not quite at an extreme but is heading there pretty fast.   I hesitate to get too sentimental, worrying that if the tide has indeed turned and a bear market is afoot, then it could just be a trap since sentiment will have to reach a serious extreme to form a lasting bottom if the bear is growling.  I think that the next few weeks should clarify which fur-lined beast rules the market.  

 

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Regards,

Douglas



#2 fib_1618

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Posted 30 September 2023 - 08:20 AM

ISEE option data though Friday suggests that we're still looking for a bottom.

 

Internals continue to suggest further downside to come in October...Friday's rally failure price bar's suggests a weak opening on Monday.

 

The August 24th forecast remains valid with now a 65% chance of challenging the 4th quarter lows of 2022.

 

Fib

 

https://tinyurl.com/ytx28qqx

 

isee092923.png


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#3 Douglas

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Posted 30 September 2023 - 09:28 AM

fib_1618, I don't track ISEE data anymore, but I do follow CBOE numbers.  If I'm right, and that's a very big IF, the put/call ratio moving average below will probably exceed the peak at the end of the 2022 4th quarter during the current wave down.  A lot more fear should be on deck before the final bottom of this large correction.

 

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#4 fib_1618

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Posted 30 September 2023 - 09:45 AM

Showing very little movement in the P/C ratio, when the markets are selling off hard, is not a good omen for a price bottom either. Neither is when put volatility premiums remain as low as they are right now during this very same sequence. Such complacency usually equates to "something wicked this way comes" sooner than later.

 

Fib


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“Wise men don't need advice. Fools won't take it” - Benjamin Franklin

 

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Demagogue: A leader who makes use of popular prejudices, false claims and promises in order to gain power.

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#5 pdx5

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Posted 30 September 2023 - 10:17 AM

Showing very little movement in the P/C ratio, when the markets are selling off hard, is not a good omen for a price bottom either. Neither is when put volatility premiums remain as low as they are right now during this very same sequence. Such complacency usually equates to "something wicked this way comes" sooner than later.

 

Fib

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#6 12SPX

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Posted 30 September 2023 - 01:34 PM

I look at actual prices for puts and they're indicating an incredible amount of bearishness for what people will "pay" for these options.  Wish I could just do up a chart, all I have is my years of experience.



#7 Douglas

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Posted 30 September 2023 - 02:51 PM

12SPX, the table below shows Friday close for SPY November options around the closing price from bigcharts.marketwatch.com.  Calls on the left and puts on the right.  I've circled bid/ask for two strikes roughly equidistant from Friday's 427.48 close about 2.2% away.  The ask for the call is $4.51 and the ask for the put is $4.40  .  That doesn't seem like a huge difference for the downside insurance over the upside.  Where are you seeing large price premiums for puts over calls?  My quick and dirty option price check below seems to indicate just about as much greed as fear at the end of the week.

 

pV7XNeO.png

 

Regards,

Douglas



#8 Douglas

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Posted 30 September 2023 - 05:15 PM

I should have circled the 437 strike price call which is even more expensive instead of the 437.5 one (about $9.5 above the close to match up with the 418 strike put which is about $9.5 below the close).  Can't add without a danged calculator.  Still same conclusion. 

 

Regards,

Douglas



#9 12SPX

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Posted 30 September 2023 - 06:28 PM

Also spy options aren't futures options and I mainly look at the even closer daily's which I find are great for giving a good reading...



#10 qqqqtrdr

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Posted 30 September 2023 - 08:56 PM

I look at the 10-day Put/call ratios and they seem to give me a medium term buy signal being on the bullish side ( albeit not a strong signal ).  The signal only gives me readings 15% of the time that is not neutral.    However it could fade Monday and become neutral it OEX Put/Call stays above 1.75