Rydex Market Timers: A Long Term View

Rarely in this forum have we used the Rydex market timers to guide us in making that intermediate term trading decision. Typically, money flows in and out of their funds relatively easily, and this data set appears better suited for positioning oneself on a daily basis. However, a longer term (i.e., weekly view) has proved fruitful in the past, and this is what is presented in this article.

Figure 1. is a weekly chart of the S&P500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall.

Figure 1. S&P500/ Rydex Total Bull v. Total Bear

Currently, the indicator is red and the value exceeds 58%. In other words, greater than 58% of the assets are in bullish funds (leveraged and non leveraged) relative to all of the equity funds. There is nothing magical about the number 58%, but intermediate term swings in the past 10 years have been identified when this indicator exceeded the 58% mark. These extremes in the indicator are noted by the red dots on the price chart and the maroon colored vertical lines.

I will leave it to you to draw your own conclusions.