Rydex traders behaving badly

I've focused on this group of dumb money traders before and it's been uncanny how accuarte they've been as a contrary indicator. Throughout most of the rally they've been chasing their own tail doing the wrong thing at the wrong time. When they chase strength they get burned, they when ran for cover on weaknesss they got burned, when they tried to fade the market by buying weaknes and selling strength they got burned! Mind you, sometimes when they bought weakness it was the correct thing to do but then they sold and ran to cash (or when short) far too early.

Currently the message from the rydex traders is a bearish one. They've bought the dip when the market first rolled over and they've been holding the bag. They sold a little bit into yesterday's rally but by and large they continue to suggest this market is not ready to resume it's upward course (in a sustainable way) and the market is still vulnerable to more downside. The behavior of option traders suggest the same thing.

The fact that the market is not following through so far and has given up half of yesterdays gains suggests a retest of the lows at the very least is even more likely to be in the cards even if we see the market turnaround from here to squeeze the bears. Anytime you see a big move like yesterday, if there's going to be sustainable follow though, most of the time the market doesn't allow you much opportunity to get in...there will either be a brief dip in the morning or it will just take off immedidiately. Let's assume the market turns around from here...the fact that it is giving you every opportunity right now to get in on this "dip" suggests a bull trap in the making.

The action we've been seeing in the past couple of weeks is bear market like behavior. Not just because we've been going down but the way we've been going down and the way dumb money traders have been acting. Does this mean the bear is back and that all the bullish notions I've been harping on for months is wrong? Not neccessarily. This action could simply just be a short/ intermeidate term slide similar to the June-July slide to shake out the "Johnny come lately" bulls. If however, I continue to see this "bad beahvior" and the SPX get's the 10-15% correction that everyone seem to want then I believe the bear could in fact be back and I will no problems at all embracing it. No ego will be bruised here let me tell you....

I said I would talk about gold stocks this morning...I lied. I'll do so this weekend.