Increased Hedging Amidst Shrinking Demand ~ The Risk Averse Alert

Tuesday, May 17, 2011

Increased Hedging Amidst Shrinking Demand

The CBOE Put/Call Ratio offers an interesting addition to yesterday's VIX commentary noting swings in volatility in relation to the presently unfolding Elliott wave (namely, wave 4 of (c))...


As wave e of 4 completes over upcoming days, the Put/Call Ratio could exceed its mid-March peak, set as wave c of 4 was bottoming. Indeed, given that the Put/Call Ratio's mid-March peak barely exceeded its peak when wave 2 of (c) was forming into late-August 2010, it seems reasonable that, a more certain sign of increasing weakness (as is typical in a 5-wave advance, fourth wave versus second wave) might register via the CBOE Put/Call Ratio.

So, the question is, might a greater measure of long equity hedging / short equity positioning register via an increasing CBOE Put/Call Ratio as wave 4 of (c) completes, while volatility during formation of wave e of 4 (currently unfolding) fails to exceed that registered during formation of wave c of 4 (mid-March)?

This presents a fitting technical backdrop so near the market's pending collapse. Seeing relatively increased hedging (such as now appears necessary to levitate the market a little longer amidst a shrinking long equity demand), itself, demonstrates a shifting undercurrent. Yet that positions are being acquired more cheaply than just a couple months ago when the market similarly was under pressure reveals increasing complacency at a time when the downward pull of debt deflation grows stronger in the face of big guns whose already emptied chambers have taxed to the max the world as we know it.

Fast Money
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