From Doug Kass on realmoney PRO:
"More Bullish on Tech
02/13/02 07:36 AM EST
If I had to base my investment decisions on only two factors, those factors would be fundamentals (75% weighting) and psychology (25% weighting).
If you dig hard and do enough in-depth research, it is possible to get an almost perfect handle on a company's fundamentals. Unfortunately, many analysts and investors don't pursue a thorough process to form the basis for successful investing.
Gauging the "psychological positioning or framework" surrounding the market, an industry, or individual equity is more difficult than examining fundamentals.
In charting sentiment, I rely on my gut (most recently when the impact of the Accounting Contagion overwhelmed the markets and appeared overdone), and on various classic sentiment measures (put/call ratios, bullish/bearish sentiment, institutional cash positions, etc.).
But occasionally, I come across something that hits me over the head, like last evening when a RealMoney Pro subscriber sent me a graph constructed by Ned Davis Research.
I have perused Ned Davis Charts since the 1970s. Davis is to charts as the Russians are to Olympic Figure Skating (at least, up until the controversy this week!).
What struck me was the chart (five-day smoothing) that Davis constructed showing the ratio of assets in the Rydex's Arktos Fund to assets in Rydex's OTC Fund. Arktos is structured to seek inverse returns to the Nasdaq 100 Index (a bearish fund), and OTC fund seeks returns corresponding to the Nasdaq 100 Index (a bullish fund). When the ratio is rising (more assets are going into the bearish fund), investors are bearish. Conversely, when the ratio is declining (more assets going into the bullish fund), investors are bullish.
Based on the Davis charts, we appear to be at an important and negative sentiment extreme for technology, with the graph almost making a 90-degree angle as monies are surging in the Rydex Arktos Fund (the bearish fund). And at the current level, the ratio is at a multi-year high!
And every time the ratio spikes and bearishness on technology rises, the Nasdaq surges (as it did in November 1998, October 1999, April 2001 and September 2001).
While I recognize this is only one data point, it is a most compelling illustration of the overwhelming negative sentiment on the technology sector.
Color me more bullish on tech.
Long QQQ." |
