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We have been repeatedly noting that the equity-only put-call ratio charts are at multi-year lows. The charts on the right show visual evidence of this.
These are very long-term put-call ratio charts, extending back 25 years in the case of the standard ratio (upper chart) and 20 years in the case of the weighted ratio (lower chart).
The Thanksgiving holiday in the U.S. brings about several positive seasonal patterns that are generally worth playing. A number of years ago, we used to trade these separately, but then it became apparent that one generally “morphs” into the other, and so in today’s world, these three systems are really blended into one. The three systems, in their original format, were:
This has been a successful seasonal trade in many years, and the last two years were the second and third best years in our history. We have used this in 23 of the past 24 years – skipping only 1995, for reasons which I no longer recall.
In this trade, we buy RBOB Gasoline futures and sell Heating Oil futures. This is the simplest way to establish the spread, eschewing futures options and ETF options – the options are just too illiquid in the February contracts, which is what we use for this spread.
For a long time, from 2006 to 2017 (with the exception of a lone sell signal in 2014), this system didn’t generate any signals as $VIX traded at normal levels of 15 and above. But when $VIX dropped to extremely low levels this year, these sell signals began to appear again. We had previously written about this system in issues dated Jan 27th and July 16th. Simply stated, the system is this:
I thought it might be interesting to see how previous $VXO/$VIXMO sell signals have played out. We have written plenty about this particular signal, which occurs very rarely – only when $VIX is near the 10 area, which is had been for a while now. The actual signal is this:
when $VXO closes below 10 and $VIXMO closes below 10.5,
that is a short-term sell signal for the stock market.
Once the signal is given, $SPX usually declines sharply, almost immediately, but the decline is short-lived.
The $SPX Index has stayed above the +4σ “modified Bollinger Band” since Feb 13th – a total of 13 trading days and counting. This is rather rare, so we thought it might be interesting to see just how unique this is – and to see what happened at similar stages in the past. In the following paragraphs, “days” refers to trading days.
The S&P 500 index ($SPX) has tagged its upper “modified Bollinger Bands” (mBB) a couple of times recently, but in neither case was a sell signal triggered. So far, this has been the “correct” move, as $SPX has moved higher. Eventually, though, this sell signal will take place, and one should be prepared to act on it. Figure 5 shows a close-up of the recent action in $SPX.
Even though we are not planning a full newsletter next week because I’ll be on a ship (and I don’t know how good the internet connection will be, either), we do want to update our Thanksgiving-based trading systems.
For the sake of brevity, we won’t detail the “3 days before Thanksgiving” or the “day after Thanksgiving” trading systems – if you want to call them that. They are not profitable, no matter how hard you want to stand on your head to interpret the data.