Thursday, June 3, 2010

Fill the Gap Then Crap?

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Talking about the stock market and, specifically, how it relates to the Volatility Index ($VIX). The $VIX may need to fill a gap before ramping higher. I am short commercial real estate and the S&P 500, so I am biased, but this is what I see. I bought some more puts today and I hope to get a chance to buy more puts for even cheaper. Anyhoo, here's a short-term chart of the $VIX (3 month 60 minute intraday chart thru today's close):

I think copper sent a message today that it ain't buying the short-term rally one bit (1 year daily chart of $COPPER thru today's close):

And one of my favorite ratios, which can be used almost as a short-term oscillator in the appropriate setting, is the copper:Gold ratio. It is warning the paperbugs not to bet too much on the "unlimited power of the printing press" over the shorter term:

And here's some interesting data related to put-to-call ratios that I haven't presented before related to the put-to-call ratio for equities ($CPCE) versus the put-to-call ratio for stock indices ($CPCI). This can be thought of as a crude measure of sentiment/option buying activity for retail investors ($CPCE) versus institutional investors ($CPCI). When the $CPCE:$CPCI ratio reaches an extreme, a trend change is likely. Here's a 10 day moving average (to reduce the noise in the daily plot) of the $CPCE:$CPCI ratio chart over the past 4 years:

A little more meandering to fill the short-term $VIX gap perhaps, but I remain black-bile bearish on stocks here. I think a better buying opportunity is coming in the Gold patch and I am excited about the prospect of buying back into Gold stocks this summer. I will also be a buyer of physical Gold on a deeper correction (when the daily RSI hits 40, I will start nibbling). If Gold refuses to go down and rockets higher from here, I won't be upset given that physical Gold is my largest investment position, but I am now out of all short-term paper Gold and Gold stock trades.

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