CXO Advisory Group on CBOE Put to Call Ratio and ISEE

Yesterday, the CXO Advisory Group published an analysis of the CBOE total (index plus equity) put to call ratio, looking out at 5, 21 and 63 day time horizons. They concluded that relative to the S&P 500 index data, the CBOE total put to call ratio is "not a useful indicator for short-term or intermediate-term trading" and found that the put to call numbers are more likely to lag rather than lead the S&P 500 data.

In a follow-up piece this morning, the folks at CXO examined the ISEE data in a similar fashion. While they found a stronger relationship between the ISEE and the S&P 500 index, they expressed concern about the sample size in the course of concluding that the ISEE "may offer a slight edge for intermediate trading," particularly at the 63 day horizon.

My suggestion is that you read both of the CXO articles in full and take a look at my comments about the usefulness of the ISEE 50 day simple moving average and Bernie Schaeffer's recent comments and charts regarding the CBOE equity put to call ratio. Of the three CBOE put to call measures (index, equity, and total put to call ratios), I put considerably more stock in the equity variant, which tracks most closely to the ISEE.

I will have more to say about the ISEE and the CBOE put to call ratios in the future. While I believe that following these ratios is a worthwhile endeavor for gauging investor sentiment, I strongly suggest that they not be the only arrow in your quiver.