why is a low put-call ratio a bearish signal to technical traders? under the assumption: technicians follow the contrarian view it does make sense. but cannot technicians also follow momentum?
Technicians can follow whatever they want. These questions are bogus.
all the questions I have seen ask for the contrarian view or the Smart Money view. The contrarian view takes the opposite side of whatever the ratio/trend/etc. they give you implies. Thus, a low put/call ratio implies that the vast majority of the street is bullish, so contrarians take the other side. Smart Money technicians would hop on board and follow the crowd. and i agree with Joey, these are bogus. But they are in the curriculum, so we better be ready. Those are easy points.
joey. it was a question on the cfai exam… !!!
I think lots of things about cfai are bogus (I think I’ve used that word like 6 times today).
Joey’s like a little budda, and I find myself agreeing with his perspective.
joey. i totally agree, but i rather would not like to take chances in passsing the exam because of “wishi-washy” questions like these.
That’s smart but it’s just like the ethics stuff - you are just repeating nonsense that they spoon feed you…
Black Swan Wrote: ------------------------------------------------------- > Joey’s like a little budda, and I find myself > agreeing with his perspective. Little Buddha? I think I’m twice as big as Buddha.
barthezz Wrote: ------------------------------------------------------- > why is a low put-call ratio a bearish signal to > technical traders? > > under the assumption: > > technicians follow the contrarian view it does > make sense. but cannot technicians also follow > momentum? —well, put-call ratio was introduced under contrarian…also, by your argument, you can flip every contrarian indicator and turn them into momentum…I say don’t lose so much sleep over these technical analysis stuff, just remember generally which one is which, seriously, even when you watch those “technicians” on tv talking about their craft, do you find them trustworthy? It’s like first they say the market’s gonna go up, then the host say some negative news, then they reply with “ya, the beauty of our work is we don’t rely on these news, we just watch the market…but ya, given this news, the market could turn south tho…” and you’d be like wtf, this guy just did a 180 in the same sentence…seriously, I saw that with a few of these guys on tv already, though some of them do give pretty interesting insights, so I’d say they’re not completely bogus
only response to above is… dont trust what u watch on tv. TA is good stuff. sh*t. i should go study! 
I know this question. it asks for a contrary trading. which one is bearish sign. When market is bullish, put- call spread is narrower. thus a contrary trader would take a bearish action. i have a question. I know size is not going to affect put-call spread. what would affect?
The way I look at it: For a rational technical trader, high put-call means more people are worried about getting rid of stocks at a decent price than buying them at a decent price implying market outlook is not great therefore this is bearish. For a loopy contrarian, this is a bullish signal, because they’re insane. I should elaborate though. Assuming the the markets aren’t about to crash, a high put-call ratio would imply that buyer sentiment has been running out of steam, so there’s an argument that if you were thinking about buying stocks then now would be a good time to get them at a decent price in order to reap future rewards. Or something. So this is a bullish indicator.
just remember the reasons ppl buy puts and calls… and, contrarians just do the opposite