Wednesday, October 12, 2005

Rydex Cash Flows

I like to track short term market sentiment in the US stock market using the Rydex cash flow ratio calculated by This ratio records the daily value of cash flows into the Rydex family of funds money market funds and bear funds divided by the cash flow into the bull funds. I find it a very useful intermediate term indicator of market sentiment since it gives a good idea of what speculators think the market is likely to do over the next few months.

A chart of this ratio appears above. The blue line records the daily values of the ratio while the red line is an exponential moving average of that number. The scale on the chart is inverted so that high values of the ratio show up low in the chart.

During the past 4 years every time the ratio rose above 0.98 a big rally began within a couple of days. Currently the ratio is at 0.99 and this is one reason why I think a big rally is about to start.

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