Chart 2:
Chart 3:
The top graph (chart 1) above plots the simple 10-day moving average for the CBOE put-call ratio and is shown as a green line. The S&P is shown in gray and the violet line is the simple 12-day moving average for the VIX. A 10-day line for the VIX works well, but the 12-day line eliminated more noise. The blue horizontal line is where the VIX equals 22. Above 22 are areas of significance where the relationships hold well; and below 22 is where the relationships break down.
The second graph (chart 2) is the same as the top graph, but provides a more recent time period to current day.
The third chart (chart 3) is a similar analysis but breaks the daily graphs into 30 minute time periods for a total of about a month and a half (to current day). This graph uses a 5-day moving average for the CBOE put-call ratio instead of a 10-day. Also, the 5-day $CPCE is shown as the purple line, which is the CBOE put-call ration for stock equities only. I added it to provide some additional insight on trend change timing.
What I like about using this technique is it deals more purely with stock market psychology and provides predictive results in many instances. It's not perfect, but can be an additional good tool.
Am interested in your thoughts. Will see when and if these correlations continue to hold true or breaks down.
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