To see where the smart money is putting its money we examine the 3-week (15-day) moving average of the OEX put-call open interest indicator. Whenever this indicator declines below the green zone (see chart below) it implies the smart money is heavily purchasing call options, i.e. bullish bets on the stock market.
The OEX open interest ratio is by no means a precision timing indicator, for it can be several weeks – or even months – early in its signals. But historically whenever the ratio has gotten this low there has always been a major rally ahead for equities in the not-too-distant future. [Excerpted from the May 24 issue of Momentum Strategies Report]