Put/Call Ratio Indication of Investor Sector Expectations

  • Materials, Industrials, Utilities and Russell 200 high PUT/CALL ratios show investor concern about price vulnerability
  • Financials, Staples and Russell 2000 have recently elevated PUT/CALL ratios that show a negative change in investor sentiment toward them

The ratio of PUTs-to-CALLs on a security may be an indicator of aggregate investor negative-to-positive sentiment or expectations for that security.

A review of PUT/CALL ratios over the past year for the SPDR S&P 500 sectors (and also ETFs for the S&P 500, S&P 100 and the Russell 1000) give a glimpse of where the most caution or concern lies in the minds of investors.

Materials, Industrials, Staples, Utilities and the Russell 2000 have the highest PUT/CALL ratios.  Financials, Staples and the Russell 2000 have the most apparent recent elevation in their PUT/CALL ratios.

The higher ratio ETFs and the recently elevated may be more vulnerable to adverse price movements than other ETFs in the group and deserve close observation for potential adverse price movements.

This table presents the current PUT/CALL ratio for sector and index ETFs as of mid-day January 6, 2015.

 

2015-01-06_PCR_LIST

Each of the next three chars show the PUT/CALL ratio in yellow in the bottom panel over the trailing 252 market days.  The upper panel plots the price (with SPY in white plotted behind the security price), and with the 200-day average in orange, and the 50-day average in white.

(Click Images to Enlarge)

FINANCIALS

2015-01-06_PCR_XLF

STAPLES

2015-01-06_PCR_XLP
RUSSELL 2000

2015-01-06_PCR_IWM

The next three 1-year “noise cancelling” Renko charts plot the price only when the price moves by more than 14-day average daily price change — note that in such a plot the horizontal axis of time is not linear, because sometimes the price moves rapidly and sometimes slowly.

Financials look vulnerable to a price decline.  Staples appear strong, but investors in PUTs and CALLs must feel the price is overdone or the sector is too crowded.  The Russell 2000 is visibly in decline.

FINANCIALS

2015-01-06_renko_XLF

STAPLES

2015-01-06_renko_XLP

RUSSELL 2000

2015-01-06_renko_IWM

The next three 10-year charts plot price in the traditional way, with an overlay of the dividends paid shown in red.

The Financials price has grown faster than dividends in the past couple of years, after a disastrous price decline and set of dividend cut in 2008-2009.  Staples price and dividends have essentially moved steadily higher together.  The price of the Russell 2000 has also outpaced its dividend growth in the past couple of years.

FINANCIALS

2015-01-06_div_XLFSTAPLES

2015-01-06_div_XLP

RUSSELL 2000

2015-01-06_div_IWM

PUT/CALL ratios should not be used in isolation, but are one data point that may be of use in assessing short-term implications for a security.

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