Thursday, September 10, 2009

Rydex Assets: Leveraged Bulls v. Leveraged Bears

Looking at figure 1, which is a daily chart of the S&P500, we note that the amount of assets in the Rydex leveraged and bearish funds are now greater than the assets in the leveraged and bullish.

Figure 1. Rydex Leveraged and Bullish (green) v. Leveraged and Bearish (red)/ daily

Despite the short term over bought conditions and the recent 5 day lift in the equity markets on diminishing volume, the markets continue to chug higher. As has occurred since March, 2009, bearish positions have been losing positions. It doesn't pay to "fight the tape".


Tyler said...

So is the phenomenon playing out in which we get higher prices and increased bears? Perhaps one of the most bullish developments possible.

dacian said...

tyler, it's quite new phenomena imo; the Rydex traders went bearish at (intermediate) bottoms and not when the markets were moving higher. It's a different development than recent history shows.

Fundamentally, the 10 year yields topped in July; the equity market refuse to correct and the next leg is not confirmed by the bond market (yields are moving lower); a similar situation occurred in 2007 or 2002; someone is wrong.

More, the latest earnings estimates are at $14; If you do the math you find PE of $71. Good luck with that!

It's not that it means something to day traders (they look at price, if it goes up, they bid) but eventually one day it will matter; it can be years, I agree :)

Guy M. Lerner said...

Tyler and Dacian: There have been other times in the past and NOT AT MARKET BOTTOMS where there were too many Rydex bears and price went up, so I don't think it is unusual.

The market could correct and then we could say yes all those bears were correct; sometimes I think there is a tendency for people to think that the market goes up in spite of investors or when people are bearish they just don't "see" what the market sees; I don't know if I buy that; I always ask what was the market discounting in Oct, 2008?

My advice: do what is comfortable; stay with your game plan; look for the "next big thing"; don't put yourself in a hole because you did something stupid.

Richard Cranium said...

Perhaps its because foreign money is in the market. Lots of cash on the sidelines coming in from Asia, trading internet-style.

Guy M. Lerner said...


Folks say there is lots of money on the sidelines but I have failed to see any such data; I have seen data to suggest that there really isn't money on the sidelines.

Anonymous said...

"Cash on the sidelines" has been credited from everything short of the immaculate conception. I too would like to know about these vast piles of cash on the sidelines I keep hearing so much about. Bob Pisani, a bobblehead on CNBC, makes frequent reference of it.
Bob, action on the floor is showing a moon rocket on no volume and no news. What are traders saying?

Well Michelle, grandma dumped out her shoebox of old teeth and cash and put it into 3x leveraged ETF. The mutual funds and hedge funds are taking cash off the sidelines!

It's been this way for weeks. I would like to know, with no volume, who is even standing on the sidelines for free, let alone with cash on their hands.

Anonymous said...

for very long time leveraged bullish were too high yet market gone up, now leveraged bearish are too high - what is the conclusion?