Rydex Report for 8.10.11

8/6/2019 Rydex Report for 8.10.11

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Figure 1. Rydex Bullish and Leveraged to Bearish and Leveraged/ daily

1) The ratio of Bullish and Leveraged to Bearish and Leveraged: 0.90

2) Values =2 (above red line) means more bulls than bears and typically, this is

bearish for prices


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Figure 2. Rydex Money Market Fund/ daily

1) High indicator value suggests fear as investors are seeking the safety of the

money market fund; this is bullish for higher prices

2) Low indicator value suggests complacency as investors are fully invested; this isbearish for higher prices

3) The trading bands are set to identify values that are 2 standard deviations abovenormal over the past 40 trading days


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Figure 2a. Rydex Buying Power/ daily

1) The Rydex Buying Power indicator assesses the amount of money on the sidelines;it is fuel available for buying

2) This indicator assesses considers both non committed money (i.e., assets in themoney market fund) and committed money (i.e., assets in all of the bearish fundsthat could potentially wind up in bullish funds) as available money on the sidelines

3) The indicator is calculated by taking the sum of all assets in bearish plus moneymarket funds divided by all assets in bullish plus bearish plus money market funds

4) Low indicator values suggest little money on the sidelines and are consistent withexcessive bullishness (i.e., bear signals)

5) High indicator values are consistent with increased buying power and areconsistent excessive bearishness (i.e., bull signals)


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Figure 3. Rydex Relative and Absolute Combination Indicator/ daily

1) When the indicator is green bullish for higher prices2) When the indicator is red bearish for higher prices3) The indicator uses the total amount of assets in all bullish funds and the total

amount of assets in all bearish funds; the indicator looks for both relative andabsolute extremes in the data


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Figure 4. Rydex Combo Indicator/ daily

1) Figure 4 is a composite indicator constructed from figure 1, figure 2a, and figure 3.


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Figure 5a. $VIX/ daily

Figure 5b. $VXN/ daily


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Figure 6. Rydex Total Bull v. Total Bear/ weekly

1) The indicator uses the total amount of assets in all bullish funds and the totalamount of assets in all bearish funds

2) The indicator attempts to identify multi week swings

3) When the indicator is green, Rydex investors are bearish and there are moreassets in bearish oriented funds than bullish oriented funds; in general, this isbullish for higher prices

4) When the indicator crosses above the signal line, prices tend to move higher

5) Indicator values >=58% lead to intermediate term tops


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Figure 7. Rydex Buying Power/ weekly

1) The Rydex Buying Power indicator assesses the amount of money on the sidelines;it is fuel available for buying

2) This indicator assesses considers both non committed money (i.e., assets in themoney market fund) and committed money (i.e., assets in all of the bearish fundsthat could potentially wind up in bullish funds) as available money on the sidelines

3) The indicator is calculated by taking the sum of all assets in bearish plus moneymarket funds divided by all assets in bullish plus bearish plus money market funds

4) Low indicator values suggest little money on the sidelines and are consistent withexcessive bullishness (i.e., bear signals)

5) High indicator values are consistent with increased buying power and areconsistent excessive bearishness (i.e., bull signals)


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My Comments

1) Ok, we have a big report tonight with a lot to get through

2) Figure 1, the ratio of bullish and leveraged to bearish and leveraged, is now less than 1

3) And this is a bull signal.But and this is a big BUT, lets qualify this bull signal a bit bylooking at when the bull signal occurs relative to the 200 day moving average

4) In the first scenario, we will go long the SPY when the ratio in figure 1 is 200d ma

5) We will stay long the SPY as long as the ratio of leveraged bulls to bears is


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12) There were 41 trades of which 73% were profitable

13) Most amazingly, there were only 3 trades that had draw downs greater than 2% with thelargest losing trade being closed out for a 2.5% loss

14) Now lets look at buying the SPY when the ratio in figure 1 is


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25) Look at the green caret inside the blue box

26) This trade was put on and it had an MAE or loss of 5% (x-axis) before it reversed and wasclosed out for a 1% winner (y axis); we know the trade was a winner because it is a greencaret

27) Now look at the 9 trades to the right of the orange line

28) These trades all had MAEs or losses > 6% before being closed out

29) For the SPY this is a fairly dramatic and when compared to the original strategy above(prices > 200 d ma), this is huge difference

30) On the positive side there is a whole cluster of trades that were positive and had an MAEless than 2% and in fact, if a trade had an MAE> 2% it was likely to be a loser

31) There were 19 trades with MAEs > 2% and 12 of them ended up being losers

32) So what conclusions can we draw from this and how can this information help us in thecoming weeks and days?


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33) Regardless where price is relative to the 200 day moving average, I hope the equity curvesand win/ loss characteristics of both strategies demonstrate that buying when others arebearish is a winning strategy

34) But where prices are relative to the 200 day moving average does matter in terms of risk

35) There is much reduced risk when prices are greater than the 200 day moving average

36) When prices are less than the 200 day moving average, the MAE profile is very similar tothe other measures of investor sentiment that I follow

37) By this I mean: about 80% of the trades on the SPY are executed with an acceptable drawdown (usually 6%)

38) With regards to those other measures (i.e., dumb money), the best time to buy would beone week after the original signal; although I dont have the data until Saturday morning, Iam assuming the dumb money indicator will be bearish this week. This means a bullsignal is generated the following Friday

39) In other words, I dont see any great urgency to chase prices higher here the datasuggests you can wait

40) However, here is another alternative

41) We know that MAEs greater than 2% will generally lead to losses

42) A tight 2 or 3% stop loss can be used from tomorrows open if you feel compelled to golong the SPY

43) Remember once the MAE goes greater than 2% you have a 63% of being a loser

44) Or alternatively, you can wait (as long as leveraged bears remains > leveraged bulls) for

that 2-3% pullback thus reducing your risk as you are buying against that level

45) If this isnt clear, please feel free to email me as I know it is a lot to digest

46) Lastly, I wanted to show the equity curve and MAE graph for the QQQ when you go longwith the value in figure 1 < 1 and with prices < 200 d ma (same rules as strategy 2)

See next page


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47) Once again, another very nice equity curve


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48) In this strategy, 7 out 56 trades had MAEs greater 6%

49) The best trades had MAEs


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Rydex Report for 8.10.11

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Transcript of Rydex Report for 8.10.11