Short-term Outlook (1-5 Days):  25% Short (from 10/11 at 116.65)

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Equity Indicators - Updates and Extremes

ISE Call / Put Ratio

Most of our intermediate-term sentiment indicators are either neutral or in middling overbought territory.  There aren't any more than a few that are screaming about excessive optimism.

One that's getting close - and got closer yesterday - is the ratio of calls to puts bought on the ISE options exchange.  Traders bought 244 call options for every 100 put options yesterday, which is high in itself, but it also helped push the 10-day average to a level we've seen only a few other times.

The table below shows the S&P 500's returns over the next few weeks when the daily ISE ratio jumped above 240 while at the same time the 10-day average was above 200.  The data goes back to January 2006.

The immediate returns were weak, and got progressively worse.  By a month later, barely 25% of the 31 days showed a positive return.  And those that did averaged +0.9%, compared to an average -2.9% loss for the losers.

The maximum gain during the next month averaged +1.6%, compared to a maximum loss that averaged -5.2%, so quite a lopsided risk/reward there.

Intel's Earnings

One of the seasonal negatives that we've touched on lately is the market's tendency to fall back soon after Intel releases its quarterly earnings, specifically if the market (meaning the Nasdaq 100) was trading near a multi-month or yearly extreme at the time.

Intel's earnings beat expectations, and the stock is trading up mildly this morning.  The broader market is doing well, too, so let's refresh the table and look at every time since the mid-1990's that the Nasdaq 100 was trading within 2% of a 52-week high the day Intel released its earning, then gapped up at least +0.5% the next morning.  The table shows returns in the Nasdaq 100 trust (QQQQ) over the next two weeks.

It should be no surprise that there's a lot of red in the table.  Every instance but one lost at least -3% during the next two weeks, and the maximum risk averaged nearly three times greater than the maximum reward.

The one exception, when QQQQ showed a positive two-week return, was in October 2007.  What's notable is that the 2.6% gain marked the exact closing high for QQQQ.  It fell nearly -2% the following day...and nearly -12% in the next two weeks.

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