Charts That Interest Me this Morning

Below are some of the charts that have caught my eye this morning.

First up is the ratio of high beta stocks vs. the overall S&P 500 index. The high beta stocks are still selling off relative to the index which lets us know that investors still aren’t comfortable putting risk back on in their portfolios.

I love divergences, I’m not sure why but I just do. I’m watching one now that’s taking place between the relative performance of junk bonds and corp. bonds. While the S&P is hitting a new low this morning the relative performance between these two bond classes is not hitting a new low. Now the tricky thing with divergences is they can continue  for an undisclosed amount of time, but they are still important to be aware of and keep an eye on.  

This last one is a little harder to understand so bear with me. What this chart shows is the huge amount of buying of puts in index options, equity options, and total options. These option categories spike on their own and tend to not mean as much, but when they rise to these elevated levels in concert is when they become interesting. We are now at the point where there are 2 puts for every one call on index options, which is something we haven’t seen since late September/early October of last year.  

So what does all of this mean? Continued weakness should not be felt with much surprise as it seems traders still don’t trust this market. And who can blame them with Greece essentially threatening to exit the euro, China throwing up weak data points, and the fact that the Fed’s Op Twist comes to an end in June. However, the rush out of junk and into investment grade isn’t as protracted as expected and the teeter totter in the options market is becoming unbalanced.  Be careful where you allocate capital here, concerning both long or short.

Disclaimer: Everything in this post is meant for educational and entertainment purposes only. Do not construe anything written in this post or blog as a recommendation, advice, or an offer to buy or sell any securities. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

About Andrew Thrasher

Andrew Thrasher is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.