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Figure 1.

Rydex Bullish and Leveraged to Bearish and Leveraged/ daily

1) The ratio of Bullish and Leveraged to Bearish and Leveraged: 1.0 2) Values <=1 (below blue line) means more bears than bulls and typically this is bullish for prices 3) Values >=2 (above red line) means more bulls than bears and typically, this is bearish for prices

Figure 2. Rydex Money Market Fund/ daily

1) High indicator value suggests fear as investors are seeking the safety of the money market fund; this is bullish for higher prices 2) Low indicator value suggests complacency as investors are fully invested; this is bearish for higher prices 3) The trading bands are set to identify values that are 2 standard deviations above normal over the past 40 trading days

Figure 2a. Rydex Buying Power/ daily

1) The Rydex Buying Power indicator assesses the amount of money on the sidelines; it is fuel available for buying 2) This indicator assesses considers both non committed money (i.e., assets in the money market fund) and committed money (i.e., assets in all of the bearish funds that could potentially wind up in bullish funds) as available money on the sidelines 3) The indicator is calculated by taking the sum of all assets in bearish plus money market funds divided by all assets in bullish plus bearish plus money market funds 4) Low indicator values suggest little money on the sidelines and are consistent with excessive bullishness (i.e., bear signals) 5) High indicator values are consistent with increased buying power and are consistent excessive bearishness (i.e., bull signals)

Figure 3. Rydex Relative and Absolute Combination Indicator/ daily

1) When the indicator is green bullish for higher prices 2) When the indicator is red bearish for higher prices 3) The indicator uses the total amount of assets in all bullish funds and the total amount of assets in all bearish funds; the indicator looks for both relative and absolute extremes in the data

Figure 4. Rydex Combo Indicator/ daily

1) Figure 4 is a composite indicator constructed from figure 1, figure 2a, and figure 3.

Figure 5a. $VIX/ daily

Figure 5b. $VXN/ daily

Figure 6. Rydex Total Bull v. Total Bear/ weekly

1) The indicator uses the total amount of assets in all bullish funds and the total amount of assets in all bearish funds 2) The indicator attempts to identify multi week swings 3) When the indicator is green, Rydex investors are bearish and there are more assets in bearish oriented funds than bullish oriented funds; in general, this is bullish for higher prices 4) When the indicator crosses above the signal line, prices tend to move higher 5) Indicator values >=58% lead to intermediate term tops

Figure 7. Rydex Buying Power/ weekly

1) The Rydex Buying Power indicator assesses the amount of money on the sidelines; it is fuel available for buying 2) This indicator assesses considers both non committed money (i.e., assets in the money market fund) and committed money (i.e., assets in all of the bearish funds that could potentially wind up in bullish funds) as available money on the sidelines 3) The indicator is calculated by taking the sum of all assets in bearish plus money market funds divided by all assets in bullish plus bearish plus money market funds 4) Low indicator values suggest little money on the sidelines and are consistent with excessive bullishness (i.e., bear signals) 5) High indicator values are consistent with increased buying power and are consistent excessive bearishness (i.e., bull signals)

My Comments 1) During the market top that developed from February, 2011 to July, 2011 there was a lack of buy signals generated by the Rydex data 2) The market never really sold off, and dips were bought long before investor sentiment could turn extremely bearish (i.e., bull signal) 3) The paucity of short term buy signals from the Rydex data had me wondering if this stuff (i.e., the Rydex data) worked anymore 4) I did consistently and correctly point out that the market would not see a lift without a real significant sell off that saw investors turn bearish 5) It should be noted that there were several very good sell signals in February, 2011 and May, 2011 when the Rydex investors became super bullish (i.e., bear signals) 6) So why I dont like to rest on my laurels, I point all this out because I am wondering if we arent seeing the same phenomenon again 7) The intermediate term (figures 6 and 7) and short term indicators (figures 1, 2, 2a, and 3) are giving bull signals, but there really isnt much conviction 8) For example, the ratio of bullish and leveraged to bearish and leveraged Rydex market timers has hovered around 1 (i.e., meaning no edge) for almost 2 weeks now 9) In short, I am wondering if we dont need another leg down to get investors even more bearish 10) That being said I still believe that the current opportunity is a low risk buying opportunity 11) Prices are approaching support and you are always better buying at support in my opinion 12) If the market breaks down, you have limited your risk and you will know your fortunes quickly 13) Furthermore, sentiment remains bearish, and this is bullish as long as prices stay above support 14) For the SPY, support is 112.58 (see figure 5a) 15) For the QQQ, support is 50.01 (see figure 5b) 16) I would still be a buyer on down days as long as prices remain above the current support levels 17) A daily close below these levels, and I would be very cautious 18) Closes below support levels while sentiment is bearish (i.e, bull signal) can lead to waterfall declines 19) Protecting capital is of paramount importance especially in a bear market!! more

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