Mucho, first, money moving around in rydex mutual fund series is the equivalent of tracking the large speculators going long or short the SPZ Futures contract. As you know, large specs (who tend to be wrong more often than right)tend to be on the opposite position of smart money commercials. And right now commercials are at a record short position in the SPZ Futures contracts while large specs have been consistently long after being mostly short the whole decade of the 90's during the greatest Bull market of all time..
What does this have to do with cash levels?
I have found that when money market Cash levels in Rydex get below 1 Billion, especially back to back, it usually means a pullback is imminent at the very least. And when "low" cash levels are confirmed by a high ratio in the long over short funds, it tends to confirm that the money is on the long side which is obviously used as a contrary indicator. BEARISH.
When rydex cash levels get back up above 1.4 Billion or more at the very least, it means the money is uncommitted and the large specs are waiting for a trend to establish so they can jump on the momentum train. At 1.6 Billion or higher you know a near term low is in or fast approaching. This has just been my experiennce from reading the numbers daily.
I think you are in the minority in your prudence with being patient and stayingin cash after having learned a valuable, painful lesson in the spring.
Here is another major problem, Nasdaq COMP has basically held COMP 3,100-3,070 and NDX 3,000 close (2,980-intraday) what 5 times now? And this higher support SOX 662 while it was broken twice on Oct 17 and 18, it has served us well and held to close today at SOX 664. This is huge support. And if this critical support gets taken out now then this huge shelf of support becomes tremendous overhead resistance on 2 consecutive back to back closes.
Herein lies the problem on COMP, NDX and SOX et al: We could get this one day false break close on any given day and then the next day either confirms the break is real or washes out all those people who sold and registers a one day false break only for a huge intraday reversal back up... And nobody is going to have the answe until that second day close.
All this of course is hypothetical but with this external historical event before us with this presidential outcome an albatross hanging over the market permeates fear and uncertainty. It could provide an excuse for the market to sell once and for all...
I would hope that looking at tonights rydex numbers we should have a clue based on the money rotation what the large speculators are betting... Unfortunately, I have seen these numbers and need to post them and it is not comforting for the Bulls. It wreaks of complacency in the face of the record short massive position built up by the short money commercials over the last 3 + months. Even more baffling is the lack of fear with little or no movement to cash or short positions in the face of buckling supports with tremors everywhere. It is the equivalent of daring a finacial earthquake to materialize since the little red riding hood has cried wolf so many times only to find there is no wolf... Well, they are now conditioned to think this time is no different when in fact this has come upon them like a frog in warm water feeling nice and cozy before getting cooked.
For me the key levels are SPX must hold SPX 1,390 close right underneath that 25 day MA; combined with SOX 640, IIX 395 and NDX 2,980 close. One close below all 4 levels, and it is lights out. I will go short before the close that day 50% in NDX Arktos and 50% SPX URSA and re-evaluate all long positions. I have for the most part avoided the serious blow-ups in my longs (check profile) but I will cut bait and maintain what gains I have and limit losses.
Why? This is a huge shelf of support and if these levels get taken out once, one never knows if that second day will confirm the break until the second day close. And by that time it will be too late.
Right now I am maintaining my optimistic viewpoint and have remained long in these turbulent waters. It is now time for total objectivity and cooler heads to prevail.
Best Regards, J.T. |
