Friday, January 7, 2011

More Extremes In The Rydex Asset Data

I have highlighted the extremes in market sentiment over the past couple of weeks, yet the market keeps on ticking higher -although the price action has been very erratic and the breadth of the advance has been very narrow.  I still contend that there will be better risk adjusted opportunities for buying equities in the future or at the very least, there are better places to put your money.  So presenting the Rydex data is somewhat redundant, but these are an interesting group of charts.
 

Before getting to the charts, I just want to mention the Premium Content service.  These charts are indicative of the kinds of data and studies presented in our Premium Content service.  This is a daily service that focuses on the Rydex asset data, and I like to think that it is the best $104 (yearly fee) you will spend on market research.  To read more about Premium Content please click here.       

The figures below show a daily price chart of the S&P Depository Receipts (symbol: SPY) .  The indicator in the lower panel looks at a 10 day moving average of the ratio of leveraged bulls to leveraged bears.  If the value of the indicator is greater than 2 -- that is twice as many leveraged bulls to leveraged bears -- than the price bar turns red.  These kinds of readings are typically associated with market tops.

Although the Rydex asset data only looks at a very small section of market participants, the data set is useful because it is a look at how these traders are positioned.  It is not opinion based data, but data that captures real money flows.  In addition, there is about 10 years of data spanning 2 bull markets and 2 bear markets.  The leveraged asset data is unique in the sense that not only do we get to see which way these traders are betting (bull v. bear), but we also get to see how much conviction they have in their bets as they are using leverage to express their bullishness or bearishness.

Figure 1. Leverage Bull v. Leveraged Bear












Figure 2. Leverage Bull v. Leveraged Bear











Figure 3. Leverage Bull v. Leveraged Bear












Figure 4. Leverage Bull v. Leveraged Bear


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