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Options Activity: Big Downturn Lurks For NetEase Inc (ADR) (NTES)

NTES – Put-call ratio for NETS is reaching a crescendo, which means a short-term pullback is likely.


A historically reliable options indicator is flashing a warning sign for high-flying Chinese tech giant NetEase Inc (ADR) (NASDAQ:NTES) right now.

That’s according to the options experts at McMillan Analysis Corp., who today note that their computer generated Put-Call Ratio Sell Signal has been visually confirmed by Netease’s chart (see below):

ntes-sell

According to McMillan, “The put-call ratio is simply the volume of all puts that traded on a given day divided by the volume of calls that traded on that day. The ratio can be calculated for an individual stock, index, or futures underlying contract, or can be aggregated – for example, we often refer to the equity-only put-call ratio, which is the sum of all equity put options divided by all equity call options on any given day. Once the ratios are calculated, a moving average is generally used to smooth them out. We prefer the 21-day moving average for that purpose, although it is certainly acceptable to use moving averages of other lengths.”

When these ratios hit historical highs or lows, they tend to become contrarian indicators. Such is the case with NTES right now, which appears due for a short-term pullback, according to the extremely low put-call ratio seen on the chart above. Essentially, we’re seeing an extreme reading of bullish bets over bearish bets, and these situations tend to correct with a sometimes violent price downturn.

That’s not to say it’s any sort of guarantee that NTES will drop in the near term — only that the odds of a bearish move are becoming much more likely.

NetEase Inc (ADR) shares were trading at $305.75 per share on Monday afternoon, up $2.13 (+0.70%). Year-to-date, NTES has gained 42.98%, versus a 9.08% rise in the benchmark S&P 500 index during the same period.

NTES currently has a StockNews.com POWR Rating of A (Strong Buy), and is ranked #2 of 63 stocks in the China category.

NTES at a Glance

NTES Current POWR Rating™
Overall POWR Rating™
NTES Current Price $344.52 0.07%
More NTES Ratings, Data, and News

NTES Price Reaction

The day of this event (Jun. 12, 2017)
NTES Closing Price$304.87 0.94%
NTES Volume1,397,753
17.25% from avg
Leading up to this event
NTES 1-mo return12.33%
After this event
NTES 1-day return0.64%
NTES 3-day return3.74%
NTES 5-day return2.98%

NTES Price Chart



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