|Written by GSCR Staff|
|Wednesday, 21 August 2013 07:16|
As a bull, it was nice to have an up day after what seemed to be an intolerable losing streak. It’s funny how I did not see one new article mention 1987, 2001, or 2008 yesterday in cyberspace. The real question is this temporary set-back a sign of a bear turn, or just the normal summer sale finally happening coupled in with some minor fear about Big Bad Uncle Ben?
We decided to look at one of our favorite metrics in technical analysis/behavioral finance for follow the smart money; the put-call ratio. In order to avoid reinventing the wheel here is the simple definition from Investopedia:
A ratio of the trading volume of put options to call options. The put-call ratio has long been viewed as an indicator of investor sentiment in the markets. Times where the number of traded call options outpaces the number of traded put options would signal a bullish sentiment, and vice versa.
Here is some data from analysis of our benchmark the Russell 2000 Index, in which we looked at its proxy, the iShares Russell 2000 Index Fund (NYSE AMEX – IWM), which closed yesterday at $102.10, up nearly 16% for 2013. This is crucial as sentiment on small cap stocks typically turns goes bearish before the rest of the broader market.
The September 2013 IWM strike price of $103.50 is about a 1.3% increase from current prices, or, follow the logic, about one month of return at current 2013 pace. Put volume was 1,605 versus call volume of 4,452. Very Bullish.
Using the same logic above, we looked at the November 2013 strike of $108. Put volume 1,011, call volume 2,086. Bullish.
Are we saying that IWM is set for another 16% run over the course of the next year due to these figures? IWM may go another roll, but we would never base that on solely this metric alone as there are several limitations to it and tracking volume at a range of strike prices and expiration months over several sessions is the more prudent way to utilize it. However, a quick sanity check always is a good idea.
In case you were wondering, we are still bullish on small caps through the rest of the year.
Have a great day.
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com