Thursday, January 17, 2008

Bernanke Prepared Remarks Sink ISEE to Historic Lows

The ISEE is at historic lows with Ben Bernanke 1 1/2 hours into his testimony before the House Budget Committee.

Between 9:50 and 10:10 a.m. EST, approximately 290,000 new put positions were opened in individual equities on the ISEE. This is in sharp contrast to the meager 34,000 or so new call positions that were initiated during the same period.

Given that a copy of Bernanke's prepared remarks we distributed at approximately 10:00, the mostly likely conclusion is that some of the larger players are voting with their feet that the Fed's too little too late approach continues to offer a significant downside opportunity for those who are short the market.

At 11:30 a.m., the ISEE has climbed to 37, but with such a large number of puts already up on the scoreboard, there is a good chance that today will see a new single day closing low for the ISEE.

12 comments:

Adam said...

I thought you had mentioned that low values of ISEE index, result in a potential bounce, similar to the VIX spike. Have I got it backards?

Bill Luby said...

No, you have it right, Adam. The VIX and the ISEE are contrary indicators...and when investors are most anxious, it is 'generally' a good buying opportunity. It may take awhile, however, for those anxious investors to decide to resume their buying and move the markets back up.

Anonymous said...

A rather unscientific look at the ISEE chart suggests that a 10-day average of around 90 has signaled a decent buying opportunity.

Eric

gaius marius said...

we're in some prime territory as far as the 10dma of the ISEE goes -- i track the ratio of the 10dma to the 50dma, and being under 80% is a rare, transient event. it'll probably finish there tonight.

that's often anticipated the low by a couple of weeks to a full quarter -- until 2006, since when it has called the june 2006, march 2007 and august 2007 bottoms coincidentally. for what it's worth...

Bill Luby said...

Eric,

I'd say more than decent, but the ISEE has never been tested in a lengthy bear market.

Today's close should bring the ISEE 10d SMA to its second lowest close ever (it will take a 34 to tie that record.) The previous lows in the 10d SMA were set in March 2007 and October 2002.

Interesting times...

-Bill

gaius marius said...

but the ISEE has never been tested in a lengthy bear market

the all-important caveat, i fear!

Bill Luby said...

GM,

It sounds like we have very similar approaches. Do the same for P/C, volatility, TRIN and one or two other measures and you get an interesting overall perspective.

BTW, welcome to my blogroll. You must be the only site that links to Hume, Dr. Vino, Foreign Affairs and Ravinia, among others.

I think that earns you an award as Eclectic Emeritus or something...

-Bill

gaius marius said...

thanks, bill -- though i suspect my blog won't live up to your link! :)

something mish said sticks with me -- the metrics everyone is using generally have little or no trial or context within a full-fledged consumer-led recession, much less the deflationary episode he sees as imminent. i'd love to get data for just 100 big-caps from a period like 1928-1935 -- it's good to know what the market can do, even if perhaps it won't do that again.

primorec said...

half an hour left and ISEE still around 50%. It seems like a final shakeout, with the vix finally spiking over 15%

dowoper8tr said...

TraderFeed has a dated take on VIX relative to P/C ratios.

http://traderfeed.blogspot.com/2006/05/vix-and-putcall-ratio-how-are-they.html

Dr. J. just made a great point about the underlying put support evaporating tomorrow and not yet rolled into Feb. Jives with yesterdays 'Striking Price' take on a liquidation of put inventory.
A few more -300 days sounds very plausible. Fed could be the fly in that ointment, however.

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