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发表于 2009-4-2 14:13
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A New Opinion On Rydex Cash Flow
by Carl Swenlin In my 2/16/2007 article, Cash Flow Shows Wall of Worry, I asserted that the dearth of bullish Rydex cash flow was a sign that the rally would probably continue because the bulls were still not committing in a big way. For the sake of variety I try not to repeat a topic too soon, but I received an unusual amount of mail about this, much of it asserting that ETFs and other products are siphoning bullish funds from Rydex and other mutual fund groups. The following letter makes the point very well. Hi Carl,While I don't disagree with your overall opinion about the market 'climbing a wall of worry', I do think you're missing the boat regarding what the Rydex data is telling us. If you look closely at the Rydex Asset Analysis Total Bull+Bear+Sector+MM chart you will notice that total assets have been diminishing since the beginning of '06. How could this be? Well I'll tell you. I've been trading Rydex funds for over 10yrs. It's a bears den. It does not make for a valid picture of overall market sentiment during bull markets.The reason total assets have been declining is because the funds/investors/etc. that use Rydex for bearish positioning are now bullish and allocating their assets outside of Rydex. A long time ago I realized that there is no better vehicle than Rydex to establish short positions. Where else (except other Rydex clones) can you establish a short position with a limited downside risk outside of the options markets? Thats why Rydex is the (smart) bears choice. There are however far more efficient vehicles to establish bull positions. During an extended bull market like we have right now, assets leave the Rydex funds in general. This is normal as Rydex is an expensive place to ride a long position. When (if) the market starts heading down for any extended period you will see money flow back into Rydex. The bears will be back.The total asset data doesn't tell us where these previous assets have gone, but I assure you its generally long. That means the data is still useful because its telling us there are very few bears in this market right now . . . a dangerous (if you're long) situation for sure. Bull markets can and do continue far longer and higher than most of us can guess or even stomach. Thats their nature to flummox the disbelievers into submission, and then they're done for awhile.I really appreciate your efforts to organize the Rydex data. I use it all the time. I do however respectfully disagree with the way you divine overall market sentiment from it. You are taking one slice of market participation (a bears den) and applying far too much importance to it, especially in an extended bull market.Respectfully,Tim HerbertDecisionPoint.com SubscriberI want to thank Tim Herbert for giving me much food for thought. I don't agree with all his points, but, after much thought and chart gazing, I believe he is correct that the migration of bull money from Rydex into ETFs and other instruments is now a significant factor, but it is a relatively recent one. In any case, it does make me have second thoughts about my conclusions in last week's article. Under this new concept, we are going to have to develop new techniques to analyze the Rydex data. This will not be the first time. As you can see by the chart below, the Ratio has had three distinctive phases and ranges. In the early days the range was very wide because there were fewer assets involved in calculating the ratio. During the bear market the range narrowed, and, when the bull market began, the range shifted lower and was more regular and stable than ever before. During the period between the beginning of 2003 to mid-2006 the Ratio was a superb measure of extremes in bullish and bearish sentiment. That it was not such a good top picker, is not a weakness that is limited to the Ratio. During bull markets, there are virtually no indicators/oscillators that can reliably identify price tops. 
In the next chart we look at bull, bear, and total cash flow. On the Bull plus Sector panel you can see three cash flow peaks followed by cash flow declines that I have emphasized with sloping trend lines. What we are observing here is money going into bull funds, then being withdrawn during the topping process that takes up to several months. Is the withdrawal evidence of money moving into ETFs? That is not a reasonable assumption. Why would a person who is using Rydex bull/sector funds suddenly close profitable positions to open bullish ETF positions? The first real evidence we have of Rydex bull funds being abandoned for ETFs is the period following the June/July 2006 lows. Note the absence of an upward surge in bullish cash flow associated with the rally. Last week I concluded that this was evidence of a "wall of worry", and that the bulls had not yet accepted the rally. I now believe that conclusion was wrong, and that investors are shunning Rydex bull funds in favor of ETFs. I think this conclusion is borne out by the bottom panel on the chart which shows total cash flow beginning to trend downward. 
Finally, notice how in the last few months bull cash flow is declining and bear cash flow is rising. This is a similar pattern to the three prior bull cash flow peaks, albeit much smaller. As in the previous cases, I think this shift is a precursor to a correction or consolidation. Bottom Line: The Rydex Cash Flow Ratio is probably being influenced by a significant lack of interest by investors in Rydex bull funds -- ETFs now being the vehicle of choice. This shift in emphasis will necessitate our being more cautious in our interpretation of the Ratio until we can see what kind of new pattern, if any, emerges. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. 
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Updated Crash Analysis
by Carl Swenlin In light of this week's sharp decline (mini-crash?), the most obvious subject for discussion in this week's article is to question whether or not we are on the verge of another major crash. In my 12/8/2006 article, Crash Talk Is Premature, I stated: ". . . my analysis of the price structure and internal indicators leads me to the conclusion that there is not a crash anywhere in sight. This does not preclude a crash triggered by an external event of which we can have no advance knowledge, but the visible deterioration that typically precedes a crash does not currently exist. "To illustrate, we can look at charts (below) of the two most famous crashes of the last 80 years -- the Crash of 1929 and the Crash of 1987. There are two chart configurations that preceded these two major crashes. First, was the price action -- a major price top, followed by a lower top, followed by a break below the price low between the two tops. This kind of event doesn't always lead to a major crash, but it is always a sign of danger, and can be part of a market correction. "The second element is internal deterioration visible in a breadth indicator. In the case of the two charts below we can see that, when the second price top formed, the ITBM Oscillator also topped, and it topped below the zero line as a result of an extended period of deterioration. Below zero indicator tops are another danger sign that should not be ignored." 
Now let's take a look at a current chart of the ITBM/ITVM Oscillators. We can see that prior to the mini-crash, the indicators were overbought and showing a negative divergence; however, we can also see numerous instances where negative divergences and overbought conditions did not lead immediate, serious declines. In other words, there was nothing on this chart that would hint at a crash. The most logical actions prior to the decline would have been to hold current longs and wait for better (oversold) conditions before opening new longs. The important point to be made here is that we currently do not have the kind of setup that preceded the 1929 and 1987 Crashes; and, while the recent decline was rather precipitous, the market has only declined about 4% from its recent highs. Having said that, it is unlikely that the correction is over, and continued negative action could indeed lead to a technical setup similar to the ones that formed prior to the Big Crashes. 
One big positive that the market has going for it is the major support that can be seen on the next chart. The recent rally pushed the S&P 500 above the top of its long-term rising trend channel. Where the top of the channel used to be resistance, it is now support, and the remainder of the correction could be played out above the support line. 
Bottom Line: We have gone seven months without a medium-term correction, and, while I am surprised at the violence with which it was initiated, I am not surprised that a correction has begun. I personally do not believe that we are setting up for a big crash or a bear market, but I will be guided by future market action. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. 
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Are We Bear Yet?
by Carl Swenlin One of my colleagues has been harassing me (in a friendly way) for not yet having declared myself a bear. The truth is that top picking is a treacherous business, and I have given it up in favor of letting trend models make my declarations for me. For example, I changed from bullish to neutral (medium-term) on stocks on March 6, and some readers have wondered why I didn't go all the way to bearish instead of just neutral. The reason is that my long-term trend model must be bearish at the time the medium-term mechanical model issues a sell signal in order for me to become medium-term bearish. My long-term trend model also defines, for me, whether the market is in a bull or bear mode over all. The long-term trend model is driven by the relationship of the 50- and 200-EMAs (exponential moving averages) of the price index. If the 50-EMA is above the 200-EMA, we are in a bull market, and we are in a bear market if the 50-EMA moves below the 200-EMA. In the chart below you can see that this model has performed brilliantly from late-2000 to the present. The downside crossover in October 2000 cleanly declared that a bear market was in progress, and the upside crossover in May 2003 confirmed that a bull market had begun. After that, there were four bull market corrections that caused the 50-EMA to approach the 200-EMA, but a downside crossover never happened, and the bull market, by this measure, remained in force. Now another correction is in progress, and it has caused the 50-EMA to turn down, but, as you can see, we are a long way from a downside crossover, assuming that no major crash occurs. Until proven otherwise, I think it is safest to assume that the recent decline is a bull market correction. This doesn't mean that we have our guard totally down. Our medium-term model has us out of the market, but the long-term model prevents us from becoming aggressive on the short side. 
While the long-term trend model has done well in the last six years, I should emphasize that it is not always this perfect, and it too slow to side step major crashes, like 1929 and 1987. For that we need more sensitive tools, focused in the medium-term. The long-term trend model is best used as a tool to objectively define bull and bear markets, so, for example, if someone asks me, "Is it a bear?", I can look at the chart, see that the 50-EMA is above the 200-EMA, and reply, "Not yet!" Bottom Line: It is useful to have an objective method to define bull and bear markets, and we use simple crossover signals generated by longer-term moving averages. I do not claim that this is the best method, but it is very effective for our purposes. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that I have added our long-term trend model to the list. 
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association. |
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