Tuesday, November 08, 2005

Rydex Cash Flow Ratio

The chart above shows the Rydex cash flow ratio (blue line) and its 20 day exponential moving average (red line). High levels of this ratio (which show up as low levels on the chart) indicate that the trading public is bearish and this is a bullish omen for stocks. I last commented on the Rydex ratio here. You can access this ratio by subscribing to Decisionpoint.com. I think this is well worth the $20 per month subscription price.

At the October lows this Rydex ratio was at 5 year highs, thus showing a remarkable level of bearish sentiment given the modest extent of the drop from the bull market top. Before this upmove ends I expect to see the ration below 0.70 (its level at the July '05 high) and probably near or below 0.60 (its level at the January '05 high). Right now the ratio is 0.87 and this indicates that the current rally has quite a way to go yet.

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