If I were to watch one piece of data from the Rydex asset data, it would be the leveraged bulls v. leveraged bears. Not only can we discern what way this small group of market timers is leaning (i.e., bull v. bear bet), but we can also get a glimpse of how much conviction (i.e., use of leverage) they have in their belief. Typically, we want to bet against these market timers.

Figure 1 is a daily chart of the S&P500 with the Rydex leveraged bulls (green line) versus the Rydex leveraged bears (red line). For 4 out of 5 days last week during the market's romp, the amount of assets in the bearish and leveraged funds was greater than the amount of assets in the bullish and leveraged funds. These market timers were betting against the market and got crushed. Nothing like good old fashion short covering.

Recent excesses by the bearish and leveraged are noted with the dotted vertical lines.

Figure 1. Rydex Leveraged Bull v. Bear/ daily

My time frame is a bit longer term, and these short term swings are under my radar. On the other hand, with such strong returns over such a short time period, I guess I should start paying more attention to these things. So let's note that the assets in the leveraged and bullish funds now exceeds those in the leveraged and bearish. Recent excesses by the bullish and leveraged Rydex timers led to short term tops as noted by the gray rectangles over the price bars.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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