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