Monday, February 15, 2010

Rydex Market Timers: Bearish And More!

Figure 1 is a daily chart of the S&P500. The indicator in the lower panel measures the ratio of the amount of assets in the Rydex bullish and leveraged funds relative to those funds that are bearish and leveraged.

Figure 1. S&P500/ daily/ Rydex Bullish and Leveraged v. Bearish and Leveraged

The current value of the indicator stands at 0.89 suggesting that the Rydex market timers are bearish, and this is a bullish signal. See the recent strategy piece on how this signal is combined with the 200 day moving average.

Lastly, it appears likely that I will be seeking "donations" from readers to support the research and time that goes into this blog. In return for your financial support, I will provide you a value added thank you, and it will be similar to the Rydex charts that can be downloaded at this link.

More to follow!


digger said...

look forward to donating,your view on things is always thought provoking and provides a perspective that's unusual.

Guy M. Lerner said...

thanks but that is too kind

Dave Narby said...

The only question I have with this indicator is does it work similarly over a longer timeframe, and especially during a primary downtrend.

Guy M. Lerner said...

No such holy grail...and I have never passed this off as one...there are limitations as there have been several times in past where nothing worked....I did an article a while back and I cannot find it showing how the bullish and leverage v. bearish and leveraged behaved in all sorts of markets

I will try to find later...

Guy M. Lerner said...


Here you go....check this out on the Rydex Data:

click here

plus the strategy I outlined is filtered by the 200 day moving average click here for study

Guy M. Lerner said...

Dave: Here are my exact words from the article written on 9/30/2009 as pertains to the Rydex data:

"But before we finish this up, let me remind you that we haven't discovered the holy grail here. Figure 4 is an maximum adverse excursion (MAE) graph from study #2. If we look to the right of the blue vertical line, we note that about 10% of the trades had a trade down or maximum excursion beyond the entry point of greater than 6%. I would call a plus 6% draw down on a trade in the S&P500 as excessive and uncomfortable. Yet this is what we see with other sentiment data (i.e., like the "Dumb Money" indicator). Between 10 to 15% of the signals will yield draw downs that most traders find uncomfortable."

"This is not a holy grail, but yet one tool to position yourself against the vast majority of traders and investors who function in the markets without a plan or a strategy."

D-man said...

"The current value of the indicator stands at 0.89 suggesting that the Rydex market timers are bearish, and this is a bullish signal."

I'll wait exactly 6 trading days and that is the end of this week since these guys went bearish; see how this plays...

Still think we might need to go lower first then up in order to get a low entry risk? I saw the sentiment from last week, everybody's neutral; when don't know what to do, you can do 2 thing: do nothing or buy the SPYDER.