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Thursday, February 5, 2009

Risk Reward Favors Short Positions


The market is severely overbought for a Bear Market rally with 42% of all stocks on the NYSE above their 50 day simple moving averages.

Rally in equities from here, especially with "Non-Farm Friday" rapidly approaching... come on really?

At these levels, the risk reward favors SHORT positions.

The CBOE Options Put Call / Ratio has worsened since my post Put / Call Ratio: Top, Not Bottom In Equities.

The CBOE Options Total Put/Call Ratio (CPC) has successfully predicted major market turning points in the current high volatility environment. The 20 day EMA (blue) is an especially reliable indicator, picking tops and bottoms on the NYSE Composite (grey area) with great accuracy beyond extreme values of 0.95 and 1.10 (horizontal black lines).

The current level below 0.95 of the CPC is far more indicative of a TOP in equities than a BOTTOM. This makes a break DOWN and OUT on equities the most probable outcome. This would manifest as a collapse below 8000 on the DOW, 800 on the S&P 500, 5500 on the NYSE Composite and 1400 on the NASDAQ Composite.

8 comments:

gtt said...

http://tinyurl.com/ava9eq

Warren said...

Bulltards Untie!

Tired said...

yea, but does it take into account "rumors" and other manipulation.... just venting...

Ben Bittrolff said...

Tired,

Don't sweat it. The market is up on the possibility that the banks will no longer have to mark to market.

Allow me to explain it in practical terms. If the girl at the bar is fat and ugly, you can pretend all you want that she's super hot and take her home. You can even tell all your buddies she was super hot. But in the end, she was still fat and ugly and it won't take long for your buddies to figure it out...

Reality IS.

Mark to fantasy doesn't repair the balance sheets.

Boat52 said...

Ben,
The girl in the bar is an outstanding way to put it. I think that the issue of the PPT has been around for a long time. Does it or doesn't it exist. At times, the strange market saves makes one believe in the PPT. Today may be one of those days.

Anonymous said...

Also GS saying buy puts. Free advice from the nasties !!?? Maybe they are the ones doing the selling. Who has the inside info on the PPT ? I just don't trust this market.
"But in the end, she was still fat and ugly and it won't take long for your buddies to figure it out..." Nice one Ben, but may take em a bit longer yet !
Josh

Anonymous said...


If the girl at the bar is fat and ugly, you can pretend all you want that she's super hot and take her home.


Thats why you are busy drinking in the first place: To make an easy pickup look beautiful at least for as long as it matters ;-)

With regards to the banks, they are beyond being a mere "ten-pinter"; which you could get away with chatting up in front of the mates (provided that they are as drunk as you).

No, the banks are "double-baggers" - two bags are needed in case one bag falls off in the excitement and no amount of drink will make them attractive!

Anonymous said...

Bah. Beauty is in the eye of the beholder.
True beauty is fleeting.
And you ought to be dancing with the one that brought you, after all.