by Ray Hines
In 1982, I found the best way to design an indicator that stays with a trend until it has run its course is to
isolate the factors that correlate highest with the price trend and monitor their intensity.
The relative intensity of correlating factors is the primary influence on price behavior and overcomes the
weakness of "fixed" trend indicators that contain the analyst's preconception of what length a trend
This result forced me to become an even bigger fan of investor emotion and the monetary areas because
of their powerful influence on price behavior. What more emotional animal could there be on Wall Street
than the world of options?
I felt that the traditional sentiment measure — the put/call ratio — was a distorted method of measuring
sentiment. Why? Because put and call option activity consistently gives more meaningful readings if it is
measured in relation to the open interest associated with it. The resulting short-term strength ratios below
also give a trader the ability to differentiate the sentiment associated with both sides of the investment
argument, the bulls and the bears: