The Rydex market timers are betting heavily that an end of the year bounce
will materialize as the bullish and leveraged assets now exceed the bearish
and leveraged assets by more than 2 to 1. See figure 1, a daily chart of
the S&P500 with the ratio of bullish and leveraged assets to bearish
and leveraged in the lower panel.
Figure 1. S&P500/ Rydex Leveraged Bull v. Leveraged Bear/ daily
Now remember the Rydex market timers are only a representative sample of all
market participants, but we should note that the ratio of leveraged bulls to
leveraged bears, which is greater than 2 to 1, marked every short term high
in the S&P500 going back to mid - June. These are highlighted by the maroon
vertical lines.
One must assume that market participants are expecting higher prices. As we
know, what we expect and what we get are often two different realities when
it comes to the market. Our expectation is for higher prices, but the market
(or person at the buy button) didn't get the memo this week. Volume is light,
and the price action is moribund and random.
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