The following is an excerpt from the May 28, 2013 blog for Decision Point subscribers.
Price took off on the open, sitting above a 1% gain at one point during the morning. The market deflated, but still finished the day up .6%.
Rydex Ratio Reflects Very Bullish Sentiment
by Carl Swenlin
As prices soar, the Rydex Ratio reflects increasingly bullish sentiment. The chart shows that the Ratio has not reached these levels for over 12 years.
The Ratio is calculated by dividing the Money Market plus Bear Fund assets by the assets in Bull plus Sector Fund assets. Note that asset levels in the Rydex Money Market and Bear Funds are lower than they were at the 2000 price top. Bull plus Sector Fund assets, however, are only about half of what they were at the 2000 top, but it is unlikely that they will get much higher because today there are a lot more choices outside the Rydex family for making bullish bets than there were in 2000.
The Rydex Ratio is at a level that shows extremely bullish sentiment, which is very dangerous for the market. In other articles we have remarked that the angle of ascent for prices has become parabolic, which is also very dangerous. We don't know where the top of the current advance will be, but the fall from that top is likely to be breathtaking.
Stocks: Based upon a 12/10/2012 Thrust/Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 is bullish. The LT Trend Model, which informs our long-term outlook, is on a BUY signal as of 12/13/2012, so our long-term posture is bullish.
On Friday we decided to adjust the steepest rising trend line so that it was drawn under last weeks low, which today turned into a short-term bottom. Nevertheless, today's close was in the lower half of the range, so today's advance may be short-lived. The PMO is still falling and is approaching a negative crossover.
Conclusion: If the market had closed in the high side of today's range, we would assume that the rally was resuming. As it stands, there may be more correction ahead.
Dollar: As of 2/20/2013 the US Dollar Index ETF (UUP) is on a Trend Model BUY signal. The LT Trend Model, which informs our long-term outlook, is on a BUY signal as of 3/13/2013, so our long-term posture is bullish.
The PMO on UUP turned up today after briefly turning down last week. The flag formation in the line chart is still intact. Expectation is for a bullish price breakout.
Gold: As of 12/6/2012 Gold is on a Trend Model NEUTRAL signal. The LT Trend Model, which informs our long-term outlook, is on a SELL signal as of 2/15/2013, so our long-term posture is bearish.
Gold is still consolidating sideways in what may prove to be a continuation pattern. Continuation down.
Crude Oil (USO): As of 5/9/2013 United States Oil Fund (USO) is on a Trend Model BUY signal. The LT Trend Model, which informs our long-term outlook, is on a SELL signal as of 5/22/2012, so our long-term posture is bearish.
USO had formed a bearish double-top, but aborted with a price reversal. Overhead resistance is close. The PMO value on the chart is equal due to rounding; it is actually still above the EMA, so a PMO SELL signal was avoided, at least for today.
Bonds (TLT): As of 5/20/2013 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model NEUTRAL signal. The LT Trend Model, which informs our long-term outlook, is on a BUY signal as of 4/18/2013, so our long-term posture is bullish.
TLT dropped 2.5% today and nearly reached support. Our long-term Trend Model signal is nearing a SELL signal as the 50-EMA is only four hundreths of a point away from a crossover below the 200-EMA.
To add to the woes of 30-year treasuries, Carl pointed out a reverse head and shoulders pattern on the bond yield chart. The neckline has been broken, and the technical expectation is for a move higher that is the equal the distance from the head to the neckline. That would put the minimum upside target near 45.
Technical analysis is a windsock, not a crystal ball.
