Rydex ratio flashing "all in" Intermediate term buy signal

Well, it's pretty much a done deal for the bears. The rydex data was giving a weak buy signal near the recent low and it simply got stronger as the market started bouncing. Cash flow into Rydex bull funds have plummeted to the lowest level of the year while cash flows into Rydex bear funds have spiked to the highest level of the year! I was waiting for cash flows into money market funds to spike but something even more bullish occured - a cash flow spike into bear funds!

Take a look now at the cash flow adusted Rydex ratio. It's at the same level as it was right at the July lows.




Is there anything else that can confirm this strong bullish signal? You bet. As mentined recently AAII sentiment showed over a 2:1 ratio of bears vs bulls the most bearish sentiment since the March bottom. At the July lows a similar 2:1 ratio occured. In addition, this week showed a large net redemption spike in equity mutual funds which also occured at the July lows.

The only significant difference between the 2 periods is the behavior of bonds which is showing weakness this time around instread of strength. Am I making too much of this? Could this be one the "hooks" that I talked about before that keeps one from embracing the proper trend? It could be, because even though bonds are acting weak yields are still lower than what they were in the summer and so perhaps higher bonds yields aren't going to be danger to equites untill they hit higher levels. It's also possible that we see bonds rally as the markets rally.

I would feel a lot more confident if all of the main indicators I look at were in harmoney but this often doesn't happen and so you need to decide which ones to embrace and which ones to ignore without being biased.

Bottom line: A strong intermediate term buy signal has been flashed. Although a retest of SPX 1030 or lower low is still possible, it's becoming more likely that the market will simply power to new YTD highs without the retest because every other time Rydex traders were this bearish the market simply powered ahead without looking back. This week we should find out which path will be taken.

I would just love to see the markets retest/break the lows with bonds and the VIX spiking to give me a super strong buy signal but waiting for things to be perfect before making a move is asking for too much. As a result, I have been selectively buying some individual names on weakness leaving myself a reserve in cash just in case the retest/lower low senario plays out. What I may end up doing as a partial hedge is buying OTM puts on ABX again because unlike with general equtities, rydex cash flow and sentiment towards gold stocks is signaling an immanent decline.