Category: Rydex bull & bear fund assets

Latest fad: buy the dip

Now that the S&P 500 has had all of a 3.4% correction, rationalizations for dip buying are coming out of the woodwork.  E.g., the latest headline from Yahoo Finance: “Fear not. The VIX is flashing a buy sign.”  Seriously?

VIX - 140805


There are better indicators of bullishness:

Rydex bear fund assets


“Spikes in the VIX tend to indicate heightened investor fear,” said Ari Wald, head of technical analysis at Oppenheimer. “From a contrarian standpoint we use that as ‘buy’ signals, and the numbers agree.”

We wholeheartedly disagree.  Investment professionals have adopted the Orwellian logic that up is down, black is white, stimulus is sustainable, and bravado is fear.  The true contrarian position is to raise cash, get short, and fasten the seat belt.

Addendum: Recent quotes from some of our favorite talking heads:

This is not a weak economy, it’s a pleasantly strong economy.  This is a nicely strengthening economy.  This is a very well demeanored economy.  It’s not an excited one.  It’s one that’s doing quietly better…  Let’s all be calm and not be panicked at this point.  I turned from being quite bullish of stocks to being neutral early last week and I have to tell you, I never thought we’d see the market fall several hundred Dow points in the course of three or four days.  I got very lucky, and I’m going to turn back to being bullish again.

~ Dennis Gartman, as appeared on CNBC, August 4, 2014

Tony Dwyer


Rydex timers most bullish since 2000 tech bubble

As of the close last Friday, just 9.8% of assets in Rydex bull and bear funds bet on the downside (weighted for leverage).  This is the highest level of bullishness since January 30, 2001.

Rydex traders most bullish since 2000 tech bubble

The Rydex mutual fund complex, which caters to market timers with a full lineup of bull, bear and sector funds, is showing near record levels of bullishness these days.  The Rydex Money Market Fund has dwindled to $737 million in assets, its lowest level in over 12 years.  Bull and bear funds show a mix of 88.4% in the bull camp and 11.6% in the bear camp, their highest level of exuberance since February, 2001.

Bearish sentiment at extreme lows.

 Rydex MMF assets

Running of the bulls: Too much testosterone

One of our favorite sentiment indicators shows bullishness at dangerously high levels.  The stimulus drug is wearing off from Athens to Shanghai to DC, yet the bulls feel young and invincible.  The current level of delusion is one for the ages.

Rydex timers wildly bullish

Since the Fed’s QE2 announcement on August 27th, the S&P 500 has rallied 19.1%.  On August 26th, the mix at Rydex Funds was 47.3% in bear fund assets and 52.7% in bull fund assets.  Today that mix is 20.4% to 79.6%.  As a group, Rydex market timers are far more bullish than at the 2007 credit bubble top.  Their track record as a contrary indicator is quite impressive.

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