"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
- Sun Tzu

Monday, January 23, 2012

Bullish Put/Call Ratio Domain Change

The equity put/call ratio is one of the sentiment indicators I'm looking at. Istead of considering absolute levels, relative extremes within their local domain are more important. I introduced the p/c ratio domain concept in an earlier post last year.

It looks like the ratio is about to move to a lower general level ("bull domain") again: when the ratio of the past 10 days averaged 0.65, prices tended to reverse in the short-term during the last six months. The zone around 0.65/0.7 might now become the "too pessimistic" level: 


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