V.10:11 (460-463): Sentiment And Trendlines For Bond Fund Trading by Joe Duarte
Product Description
Sentiment And Trendlines For Bond Fund Trading by Joe Duarte
The Hines ratio, a key sentiment indicator, is designed to help traders pinpoint emotional extremes in the bond market. Here, the Hines ratio is combined with Barron's Bond Bullish Consensus, classic trendline and retracement analysis to help traders identify buying and selling points for the intermediate term.
The Hines ratio is a modified put/call ratio that refines traditional option ratio analysis by including the open interest figures in the equation. I use the options volume and open interest figures found in Barron's futures options section under the listing of "U.S. Bonds." These figures are the total volume traded and final open interest for the period covering Thursday to Thursday. The formula for the Hines index is:
(Total put volume / Total put open interest)
(Total call volume / Total call open interest)
The Hines ratio presents the options volume as a ratio of open interest. Including open interest is valuable because increased volume along with increased open interest indicates that new positions are being added. Extreme levels of option sentiment, both bullish or bearish, cause the Hines index to rise or fall to levels that often precede significant intermediate-term tops and bottoms in the bond market. For example, a Hines index buy signal usually but not always occurs when the index reaches numbers above 1.8. Measurements below but not necessarily at 0.65 usually signal intermediate-term weakness. The buy signals are much better at predicting higher bond prices than the sell signals are at predicting falling prices.
The Hines ratio, a key sentiment indicator, is designed to help traders pinpoint emotional extremes in the bond market. Here, the Hines ratio is combined with Barron's Bond Bullish Consensus, classic trendline and retracement analysis to help traders identify buying and selling points for the intermediate term.
The Hines ratio is a modified put/call ratio that refines traditional option ratio analysis by including the open interest figures in the equation. I use the options volume and open interest figures found in Barron's futures options section under the listing of "U.S. Bonds." These figures are the total volume traded and final open interest for the period covering Thursday to Thursday. The formula for the Hines index is:
(Total put volume / Total put open interest)
(Total call volume / Total call open interest)
The Hines ratio presents the options volume as a ratio of open interest. Including open interest is valuable because increased volume along with increased open interest indicates that new positions are being added. Extreme levels of option sentiment, both bullish or bearish, cause the Hines index to rise or fall to levels that often precede significant intermediate-term tops and bottoms in the bond market. For example, a Hines index buy signal usually but not always occurs when the index reaches numbers above 1.8. Measurements below but not necessarily at 0.65 usually signal intermediate-term weakness. The buy signals are much better at predicting higher bond prices than the sell signals are at predicting falling prices.
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