I have never reviewed the Rydex Ratio chart in a while. Primarily as a result of what was thought of overbought territory grew to become the ‘new’ oversold territory and I wished to see the way it behaved shifting ahead.
A fast refresher on what the Rydex Ratio tracks. We evaluate the entire property in cash market and bear funds to the entire property within the bull and sector funds. These numbers are gathered within the night after the market shut (therefore the 9/3 readings being essentially the most present). The smaller this ratio turns into, the extra bullish the sentiment studying. Sentiment is a “contrarian” indicator. The extra bullish the sentiment, the extra bearish the outlook turns into for worth. The thought is that when everyone seems to be bullish, that’s when you will note the draw back reversal.
Take a look at the chart under!
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You may see that it danced round beforehand overbought territory from November 2020 by means of the primary a part of 2021. Nonetheless, now we’re beginning to see oscillation in its new post-bear market vary.
Be aware the dotted vertical strains align with “cardinal” tops. I’ve additionally annotated a vertical line at our final all-time excessive for the SPX. A Rydex Ratio in overbought territory typically accompanies market tops. Presently we’re seeing one of many lowest readings on file for the Rydex Ratio. Which means that individuals who’re “voting with their cash” are extraordinarily bullish.
Conclusion: Sentiment primarily based on the Rydex Ratio is very bullish given the traditionally low studying. Given sentiment is contrarian, there’s now a bearish worth bias primarily based on ‘actual cash’ buying and selling.
Technical Evaluation is a windsock, not a crystal ball.
— Erin Swenlin
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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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Erin Swenlin is a co-founder of the DecisionPoint.com web site alongside together with her father, Carl Swenlin. She launched the DecisionPoint day by day weblog in 2009 alongside Carl and now serves as a consulting technical analyst and weblog contributor at StockCharts.com. Erin is an lively Member of the CMT Affiliation. She holds a Grasp’s diploma in Data Useful resource Administration from the Air Pressure Institute of Know-how in addition to a Bachelor’s diploma in Arithmetic from the College of Southern California.
