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Guy Cohen

Trendline and OVI Dovetail Together

by Guy Cohen 17. April 2012 07:24

I don't think anyone has been particularly surprised at the market's current retracement.  After all, the S&P's OVI turned negative two weeks ago and has stayed negative since.  

Yesterday was AAPL's turn to finally capitulate with the OVI.  But in the wake of analysts talking up a $750 price target for the stock, we'll keep a close eye on AAPL to assess whether this is merely a blip or something more serious.  

Whatever the case both the wider market and AAPL have been due a correction for a while.  

SPY
The S&P is even forming something of a bearish flag right now, but as ever we need it to break the low.  

spy 2012.03.17.jpg


AAPL
AAPL has a negative OVI for the first time since November 2011 after a phenomenal run.  One swallow doesn't make a summer though, so I don't think now is a time to write off the most valuable company in the world.  If you want to trade this stock short, be patient and wait for a tradeable pattern to form ... and then watch it like a hawk because AAPL has a habit of biting shorts where the sun don't shine!  

aapl 2012.03.17.jpg

In terms of the OVI Dashboard, we can see that there's been a sea-change over the last few weeks, witht the bears holding sway in terms of flag patterns now.  In terms of the the OVI being positive or negative for 5 consecutive days, it's now almost even (77 bulls vs 60 bears for the S&P 500 stocks).  That's a massive change when you consider that 10 days ago the ratio was 10:1 in favour of the bulls.  

ovi dashboard 2012.03.17.jpg

Remember also, that to qualify for that filter, the bears must have 5 consecutive negative OVI days together with open interest more than 50% higher for puts than calls.  Conversely, the bulls must have 5 consecutive positive OVI days together with open interest more than 50% higher for calls than puts.  The swing of this indicator is huge when you consider that the bears had to start accumulating their 5 consecutive days from potentially scratch, whereas the bulls were already there in situ.