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Rydex Market Timers: All In
Yesterday's mini sell off has brought out the dip buyers. At least this is what we can infer from our Rydex market timers.
Figure 1 is a daily chart of the S&P500 with the amount of assets in the Rydex bullish and leveraged funds versus the amount of assets in the leveraged and bearish funds; this data is hidden. The indicator in the lower panel measures the ratio of assets in the bullish and leveraged funds to the assets in the bearish and leveraged, and as of Thursday's close, this ratio was greater than 2 to 1. Since this bull run began in March, 2009, a ratio greater than 2 generally was a marker of a short term top - not a buying opportunity. The other times the ratio was greater than 2 to 1 are indicated by the gray vertical bars in figure 1.
Figure 1. Rydex Bullish and Leveraged v. Rydex Bearish and Leveraged/ daily
Not only do we get to see what direction these market timers think the market will go, but we also get to see how much conviction (i.e., leverage) they have in their beliefs. Typically, we want to bet against the Rydex market timer even though they only represent a small sample of the overall market.
Figure 2 is a daily chart of the S&P500 with the amount of assets in the Rydex Money Market Fund in the lower panel. When the money market fund is flush with cash, one can assume that the Rydex timers (like market participants in general) are fearful of market losses. From a contrarian perspective, these are good buying opportunities. When the amount of assets are low (like now), these market timers are all in; one should be on the lookout for market tops. There is little buying power left. As of Thursday's close, the amount of assets in the Money Market Fund was at its lowest value since the bull run began in March, 2009.
Figure 2. Rydex Money Market Fund/ daily
i think they are all waiting for a monster employment report to sell the news. I could be wrong, but check it out this Friday. Funny things always happen around the start of a new month/ quarter.
This descent may actually work out in contrast to the prior few BECAUSE it isn't so fast and furious. Why isn't the market down 100pnts? Well, that would be fun, but it actually may be too fleeting. Today and yesterday were good because we had buyers at several support levels, who ultimately were taken out by EOD. If we can keep bringing in buyers only to trap them this drop may be more sustained than that which we saw in July and the beginning of this month.
I must admit that RIMM is tempting at these levels
All in to be sure.
Be our guest;;;
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Offseting all the bad news is one big positive...the need for next Wednesday's quarter record close. We had our small 3% retracement; now onward and upward with the FED guaranteeing no one loses money.
I would agree that there should be a lift into quarter end but we need to go lower first
I warned of an impending stockmarket crash back in early 2007.
I have also been warning that this bear rally is topping.
LATEST MARKET OUTLOOK:
http://www.zerohedge.com/forum/market-outlook-0
It's easy to predict the past. If you ever did....
your link shows up as "n/a", where can we see your predictions?
Are you calling a top to treasurys? Should I buy Bear Stearns?
BEAR IS FINE
Thanks for the charts. I also follow the rydex funds. one thing that has boggled my mind is that the Rydex cash flow ratio shows that traders started buying the bear market decline around SPX 1,100. according to this small subset of information there never was any capitulation. personally, i have found investor psychology to be somewhere between irritated and pissed off, but we never got the despair capitulation normally
produces. fwiw
I've been tracking the leveraged ETF's for months now, but on a moneyflow basis instead of total assets. Interesting take on it and I'm going to modify some of my scripts to check this out.
I've come to the conclusion that a lot of this isn't dumb money but is short and intermediate term hedging by big money players in the market that are choosing leveraged etfs instead of options as their hedging vehicle. Particularly noticeable on days where VIX is inverted and correlating with the SPX
Just to let you know, on a moneyflow basis I get the same results. It's time for a correction at the very least.
However, the divergence between /ES and spy's average volume vs. actual volume leads me to believe that the "big money" is pushing down now just as hard as it's been pushing up since march. In every case we've gotten one of those weird ass ramps, /ES has been 20% or more ahead of spy. That never happened to the downside. Well, starting in the hour after the FOMC announcement, /ES's volume was elevated compared to spy to the downside. It has been like this on every dump we've had since then.
Conclusion? Well, the people that were pumping the shit out of the markets for months with futures have decided that there is more money to be made by selling now.
Good luck if you're long against the exact same forces that drove this insane rally to a 64% retrace.
Thanks for the great insight and follow up
They are going all-in to CRE/Hotel REITs today. Those are now like junior PM minors on steroids, trading off the inverse dollar moves. Pure insanity.
Speaking of which, money is getting pulled from the AMREITs (the ultimate leverage). This is too funny.
It always amazes me that the more a market goes up, the more people want to buy the market. This is similar to people wanting to purchase more blue jeans every time the price goes up.
A perfect example of the huge emotional component of the stock market.
Sure! The more expensive tulip bulbs get, the more it proves tulip bulb prices will always go up, and the more sense it makes to buy tulip bulbs.
If there are 3 pairs of blue jeans in a store with 3 different prices... the careful, thrifty shopper will analyze each for value. However, you are right... there are many shoppers who will simply purchase the most expensive pair of jeans because they rationalize that must be the best pair of jeans... and they don't want to take the time to analyze each pair.
So this stock market is the grossly overvalued, but "must be the best investment option" stock market... and the retail buyers keep on coming.
Agreed. On the surface it doesn't seem to make sense in supply/demand terms. But if you turn it on its head, cheap stocks get cheaper usually, it may make more sense. This is because if they are priced for bankrupcy or are trading on the cheap due to inherent flaws in the business model (evident or suspected) the general investing public shys away. I can get that. So I guess if stocks that go up generate their own buying interest, this would 'make sense' as they appear 'safer' and the money may be a bit more sticky. Of course, all this is not backed up by any quantifiable justification, but my 2 cents...
Talk to marketing people some time. Some very interesting conversations develop over what price point to hit for your product. After you figure cost plus profit plus retail mark ups, most people would assume you have your retail price.
Not at all what happens in the real world.
Price dictating perception. Happens often, even if there is nothing behind it but an inflated price (and/or talk about limited supply).
Fascinating. Not being a marketing person myself, I would like to ask, do you happen to know of any books about this? Or perhaps I should ask, what would marketing people say I should search for to find books about this?
People are just like any other animals, in that they're wired a certain way, to survive and succeed in certain activities (for instance, hunting buffalo). When they try to operate in other activities (for instance, stock market investing), the things they do simply do not work.
Even after all these bad pieces of news (new home sales, durable goods, higher oil due to Iran tension) why is the market not down 100 pts? Why is the VIX of all things flat? There's gotta be something fishy going on for sure.
After a six month, 60% rally, buying on the dips has become a "conditioned response". It's only the dips that are buying at this stage of the game.
Greater fool trend following works until it doesn't.
MWN above 29.24?
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