Wednesday, December 16, 2009

Rydex Market Timers: This Is Amazing!

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, but the ratio of bull to bear, which is depicted by the indicator in the lower panel, is 2 to 1. Since July, 2009, every time this ratio got above 2, it marked a short term top in the S&P500. These are noted by the maroon colored vertical bars.

Figure 1. S&P500/ Rydex Leveraged Bull v. Leveraged Bear/ daily

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. The current value is the lowest value since the rally began in March, 2009. While all of this is short term noise, it is absolutely amazing that there would be this much commitment to the market after a 60% plus run in the S&P500.

Figure 2. S&P500 v. Rydex Money Market/ daily


biscosc said...

Hello Guy,

Have you ever done any research with Rydex using the NAV adjusted values? I know Schaeffer's has a chart but I really don't know how it is calculated. Theoretically I would imagine this would better capture cash in/cash out and therefore true sentiment. I just ask because their chart is not matching the level of bullishness that yours are. Here is the link:

D-man said...

"it is absolutely amazing that there would be this much commitment to the market after a 60% plus run in the S&P500"

Neih! Have a look where these professional managers are with their fund: lower than at 2000 top.

What a great world! People love more stocks today than at 700 on S&P. Really smart people!

Guy M. Lerner said...

biscosc: I am having a hard time accessing that link, but it is possible they are using the Rydex ETF's; I am using the flow of funds (real $) into their mutual funds. I have almost 10 years of data on this!!!

D-man: Agreed...they love them more than at 700; even if this turns out to be late 2003 --blow off top-- it is likely that the market will give a lot of this back at some point--these will not be sustainable gains

TraderMark said...

Hi, my name is the Bernanke Put -how are you?

Anonymous said...

both Nova and Ursa are small funds, $49 and $199 millions respectively. so they are just trees within a forest (of the Rydex family of funds.) I have noticed in other brands (traditionals... SPDRS and iShares and leveraged... Proshares and Direxion) are seeing slower inflow of funds into bullish/leveraged ETFs while increasing outflow of funds out of bearish/leveraged ETFs. What I'm believe is happening here is some hesitation for bulls and some capitulation for bears.

On the yesterday's big Rydex inflows, could some of this be related to traders jumping in ahead of the pre-FOMC announcement today since there's a good 1 day track record of market outperformance? This looks similar to the pre-Thanksgiving seasonality where there's large inflows in hope of getting good 1 to 2 day of outperformance performance and then getting out quickly?

regards, Jimmy

Guy M. Lerner said...


While I agree that the Rydex data is not the entire market, I always preface my comments that it is only a representative sample of market participants and as you point out, a very small one at that.

The other types of funds you mention have come under increasing scrutiny of late - they aren't the vehicles folks once thought of them.

Lastly, folks may be jumping in ahead of the FOMC announcement, and this was my reference to all this noise - this data is for very short term traders or if you would like to better position yourself within a longer term trend; the Rydex trader appears to be short term by nature.

System manager said...

It will be hard for the market to fight the "tailwinds" of seasonal strength over the next 3 weeks ...

LOM said...


Might be interesting to see an overlay of those two charts. Any way you can manage that?