Research Excerpts

US Stocks At Important Decision Point

Posted on: Thursday, June 22nd, 2017

The following is one of three charts and a brief excerpt from a report that was sent to Asbury Research Subscribers earlier today, entitled US Stocks At Minor Decision Point & Poised To Resume Post Election Advance.

Investor Sentiment: A New Leg Higher?

The blue line in the lower panel of Chart 2 below plots the 5-day moving average of the International Securities Exchange (ISE) Sentiment Index (ISEE) which shows how retail options traders view stock prices.

According to ISE: ISEE only measures opening long customer transactions on ISE. Transactions made by market makers and firms are not included in ISEE because they are not considered representative of market sentiment due to the often specialized nature of those transactions. Customer transactions, meanwhile, are often thought to best represent market sentiment because customers, which include individual investors, often buy call and put options to express their sentiment toward a particular stock.

The green highlights in Chart 2 show that the ISE has reached a least bullish extreme, indicating a historically low number of call options versus put options which, as a contrary indicator, has coincided with most every significant near term bottom in the S&P 500 (SPX, upper panel) in recent history.

Chart 2

This suggests that, unless US equities are rolling into a major downtrend, another similarly important bottom is likely to emerge from a or near SPX’s current level.

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