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Strategies & Market Trends : Win Lose or Draw : Be A Steve, Make A Call -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey S. Lillie who wrote (969)	2/7/2003 12:12:00 AM
From: Win-Lose-Draw	Read Replies (2) \| Respond to of 11447

last summer $vix spent the better part of three months living on and above the upper bband. think about that. -ggg- my guess is that we're getting a bit of a bounce soon - sew's 5% sounds about right - then the hammer falls for the second half of the dump that was so rudely interrupted last october. and then, i think, we go into the dull trading range you've already so posted about so eloquently. but i do genuinely believe we have one final flush. not to dow 3k or whatever, but a dow starting with a "5" i can easily see.

To: Jeffrey S. Lillie who wrote (969)	2/7/2003 12:23:06 AM
From: Jeffrey S. Lillie	Read Replies (1) \| Respond to of 11447

i tried to post some charts from decision points site but it wont let me. heres the scoop. the rydex ratios are all slanted more bearish now than at the oct lows. readings in oct and now of ratios below. rydex ratio 2.62 to 1 then, 3.17 now bear/ bull 2.11 then, 2.62 now ursa/nove 4.5 then, 5.91 now this is a -spx/+spx another interesting fact is the bull assets are at same levels as oct. while bear assets are up 34%. overall for all funds rydex assets are up 14% since october. so net, no new funds for bull, but a 34% increase for bull. you have a lot of folks sure we are going down. that teeter totter might just surprise a lot of folks. j -------------------------------------------------------- THE RYDEX RATIO Sentiment has traditionally been measured by taking polls of selected groups of investors, advisors, investing professionals, etc. There have been and still are problems associated with this methodology: (1) The polls are normally taken over a period of several days, during which time market movement and investor outlook can change radically; (2) The responses are strictly subjective, reflecting the emotional status of the person being polled, not necessarily his/her investment position. The idea behind using sentiment indicators is that we are trying to determine when investors have reached a saturation point of bullishness or bearishness. For example, tops are formed when everybody who is going to buy has bought, and bottoms occur after there is no one left to sell. Using subjective measures like sentiment polls makes it difficult to determine exactly when these extremes have been reached, and polls have never been particularly good for bottom or top picking. I have always maintained an awareness of sentiment, but have been reluctant to make it one of my primary decision-making tools. When the first Rydex Ratio was invented several years ago, it was based on two very small mutual funds -- URSA (bear) and NOVA (bull). Because of the small amount of cash involved (and, presumably, the small number of people using the funds), it was subject to extreme movement in either direction, and I considered it no more reliable than sentiment polls. Things change, and we have to constantly question the basis of our beliefs. In the case of Rydex, the company has added new bear/bull funds (ARKTOS/OTC) plus several of sector funds. Where a few years ago total assets in the two Rydex funds might have been a few hundred million dollars, today Rydex has over 20 funds with assets well approaching $7 billion. This is a very stable platform from which to derive indicators. This ascension to "critical mass" in recent years has made the Rydex Ratios much more useful as indicators measuring sentiment. Rather than measuring someone's vague opinion about market direction, the Rydex Ratios present specific information about where people are actually putting their money. This is a vote that really means something. Also, we can compare current investing patterns with previous periods and determine when bullish or bearish saturation points are being reached based on an objective, quantitative measuring stick. Decision Point calculates and charts three Rydex Ratios: MONEY MARKET + BEAR FUNDS / BULL FUNDS + SECTOR FUNDS: For our purposes, this is the "official" Rydex Ratio -- it encompasses virtually all the money in the Rydex Fund group. Because some Rydex trades are executed through brokerages, we also track the net cash flow into and out of Rydex, which allows us to estimate an "inferred" money market amount. The inferred money market calculation assumes that cash leaving Rydex is going into brokerage money market accounts outside of Rydex, and that it will probably be coming back into Rydex funds as soon as investors take a more definite bullish or bearish stand. This is not entirely true, of course, but we believe the estimate is better than nothing. BEAR FUNDS / BULL FUNDS: This ratio is more subject to distortion because bullish money can go into certain sector funds that may be performing well; however, it does measure the activity of investors engaged in pure index plays. URSA / NOVA: We still calculate this original ratio for those who like to follow it, but we believe it is too narrowly focused, and that the other two ratios provide a more accurate view of sentiment. We also calculate and chart daily and cumulative net cash flow entering and leaving the Rydex group of funds. The chart above gives us good examples of extreme readings over a range of market conditions. We have identified the "normal" range of the indexes, but clearly it is no "slam-dunk" to interpret the indexes in relation to these ranges. I think the ratios are most useful in identifying market tops, but we can still use them to gage when there is sufficient bearishness to justify market exposure, depending on other conditions. Copyright 2002 Decision Point. All Rights Reserved.