Now Reading
Follow Through

Follow Through

by The MoleSeptember 9, 2020

The weekend fears of a many retail bag holders turned into reality yesterday when last Friday’s sell off was amplified by continuation at the tail end of a lackluster low participation session. The main thought circling around in everyone’s inflamed amygdala right now is whether or not we have reached selling exhaustion or if there will be more follow through in the days and perhaps weeks to come. The short answer to that is – yes, and no.

The long answer is a bit more complicated but let me try to lay it all out for you:

For starters here’s the put/call ratio for equities on Sept. 4th – last Friday – courtesy of the Options Clearing Corporation (OCC). Despite a rather significant sell off that hit big tech pretty hard in particular it ended up at 0.81.

I did actually check various tech related symbols, e.g. AAPL, MSFT, AMZN, etc. and the p/c ratio was a LOT more amplified, which was in line with the fact that that sector had been hit particularly hard.

Now contrast that with the p/c ratio recorded for yesterday. Nearly 1/3 more call activity than put activity.

If we look at the most active symbols traded then call activity FAR outweighs put activity. Which is interesting in that almost none of these symbols have recovered. MSFT for one was closing at new lows after doubling last Friday’s losses. So what gives?

SECTOR ROTATION – that’s what. At least a blatant attempt to do so. Which may succeed, we probably know a lot more today (my old ‘follow up to the first follow up’ theory). What I do know is that less demand for put reduces the pressure on market makers (forced to provide them) to sell stock in order to offset their positive delta exposure.

If it succeeds we should see a meaningful bounce materialize either today or tomorrow. If it fails then strap on your helmets as the ensuing delta covering would trigger a veritable selling avalanche.

Now let’s look at a few interesting charts:


It's not too late - learn how to consistently trade without worrying about the news, the clickbait, the daily drama and misinformation. If you are interested in becoming a subscriber then don't waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
Enjoyed this post? Consider a small donation to keep those evil deeds coming!

BTC: 1MwMJifeBU3YziDoLLu8S54Vg4cbnJxvpL
BCH: qqxflhnr0jcfj4nejw75klmpcsfsp68exukcr0a29e
ETH: 0x9D0824b9553346df7EFB6B76DBAd1E2763bE6Ef1
LTC: LUuoD6sDWgbqSgnpo5hceYPnTD9MAvxi6c