I have been lugging a modest net short position but plan on becoming more aggressive on the short side this week. What has changed?
Although put/call ratios have failed as signals since mid December, we are seeing even more extreme readings. I have had to reformat the axis on my charts to account for the recent put/call readings because the lines were literally off the charts. (
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The bears on the Investors Intelligence survey have finally fallen below 20%. Of all the signals that these sentiment surveys throw off I have found that the bears falling below 20% on the II survey to be one of the most reliable sell signals.
Rydex traders recently set a record for being positioned the most bullishly ever.
I have seen sentiment become extreme and stay extreme through year end and the beginning of the year before. However, January options expiration has been a turning point in many of these instances. Last year was one of those instances. January expiration is four short trading days away.
My vehicle of choice for expanding my net short position will likely be put options on the SPY.
Disclosure: I am long put options on the SPY