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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA
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To: dvdw© who wrote (17386)6/22/2003 9:48:42 AM
From: Casaubon  Read Replies (2) of 19219
 
I here what you're saying but, keep in mind, these funds are a drop in the bucket in the grand scheme of things. In other words, they don't move markets. Having said that, the concept is that they are supposed to be representative (ie, a statistical sampling of investor behavior). Furthermore, the concept of greater fools suggests that the sampling will be wrong more often than correct. Thus, the fund levels are supposed to have at least a rough inverse correlation with implied future market direction.

A few points should be kept in mind when attempting to utilize this information:

1) The fund asset values may be too small to be statistically significant.

2) The concept of "trend" is diametrically opposed to this notion of contrarian investing.

3) The extremes on the long side got to 10:1 long to short. This then begs the question, "what is overbought/oversold?" (one must then define a set of parameters which define average levels representing "extremes")

4) "Investors" involved in these funds are likely more involved in timing the markets than investors, which skews the tenet that these funds are somehow representative of investor behavior.

Therefore, one now needs to address the question of the competency of Rydex traders.

These statements are not meant to be derogatory in any way. They are merely my unbiased scientific observations, with some conclusions I have drawn based on my experience.
I have not attempted to validate, nor have I attempted to disprove the methodologies of this thread via any type of statistical analysis.
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