GOLD PUT/CALL RATIO CONFIRMS BOTTOM IN PRICES
By Jordan Roy-Byrne, CMT at The Daily Gold:
This post is a sample of our premium work. It comes from today’s premium update.
We track options data (put-call ratios) from the International Securities Exchange. Their options data provides a better contrary indicator than options data from the CBOE. Below is a chart of GDX along with the put-call ratio from the ISE. Rising put-call ratios or spikes tend to provide bullish signals when they occur after a market has been falling. We use this data in conjunction with regular technical analysis. Note that the put-call spikes at the end of October signaled a bottom in GDX. We think the same thing has just happened now.
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Why “Rising put-call ratios or spikes tend to provide bullish signals when they occur after a market has been falling”? Shorts will cover? But that would very short-term.
Since tracking this data (from the ISE) I have found that rising put/call ratios provide better buy signals when a market is correcting or a few days past a bottom. It just doesn’t provide strong buy signals when you see rising put-call ratios in the middle of a strong trend. Technicals work best then…..but when a market is correcting, best to use technicals and sentiment indicators. Hope this helps.