The Rydex Cash flow Ratio measures the ratio of cash going into the bullish and bearish funds and is a sentiment indicator. When the Rydex Trader is most bullish this ratio drops to a low level and when they are most bearish a high reading is recorded. What is puzzling here is that the Rydex traders are way to bullish. Over the past year when this ratio reached .90 or lower a top in the market was not far off. Yesterday this ratio closed at .87. Maybe the Rydex trader has it right this time but history shows otherwise. Not all sentiment indicator work all the time that is why it’s wise to look at different views of sentiment. We also keep a close eye on ISEE put/call ratio. Normally bottoms form when the ISEE ratio reaches near .70 or lower and tops form near 1.50 or higher. Lately this ratio has been running near 1.07 and near neutral. What I conclude by these sentiment indicators is that most investors think the decline is over and the market is about to start an uptrend. I would think something would happen in the market to sway the investor to the other side of the fence before the next rally phase begins. For that to happen a further decline would be needed in the market. The door is still open for a test the of the October 10 low near 840 range or a possible test of the 2002 low near 800 on the SPX. Staying flat for now.
The chart below is from 1966 and shows the NYSE and the McClellan Oscillator and Summation index and we are comparing the 1966 chart to the right chart of the current NYSE chart of the McClellan Oscillator and Summation index. Since Sentiment is not right for a bottom here, which in turn implies a possible pull back in the market. We believe something similar is happening now that happen back in 1966 as far as the bottom process is concerned with the McClellan Oscillator. Back in 1966, an oversold reading on the Oscillator reached -150 in early September and then pushed over +100 which was considered extreme back then and showed the market went from extreme oversold to extreme overbought and is the type of Oscillator readings to get at bottoms. Again The Oscillator reading has to get extreme oversold and then to confirm the bullish reversal in the market the Oscillator has to become extreme overbought. After the overbought reading the market can hit new lows but the Oscillator will make a higher low which shows strength in the market. On the current market the Oscillator reached extreme oversold with a minus 400 reading in early October and then jumped to a +320 reading in early November and has confirmed the reversal process in the market. Next (current) pull back in the market can hit new lows but the Oscillator should make higher lows and that will complete the bottom process. The Oscillator extreme minus to extreme plus readings imply the market is making an intermediate term low just like it did in 1966. This possible new low in the market may push the sentiment readings where they need to be for a bullish outcome in the market. Our thinking is the SPX may take a shot at the 2002 low near 800 range.
The chart is courtesy of www.etfinvestmentoutlook.com. For the short term the picture remains favorable. On the previous pages of this report, we talked about a possible pull back in the SPX because sentiment is not quite right for a bottom. On previous reports we mentioned that the Gold stocks having been tracking with the NYSE so far on this decline. The COT (Commitment Of Traders) for Gold is bullish along with a rising bullish Summation index as well as a bullish divergence in the Oscillator. If the NYSE does pull back near term it could pull back GDX also. However both the NYSE and GDX will have a bullish outcome once the bottom process is complete. Sold PMU on 2/29/08 at 1.20, bought at .81 for gain of 48%. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. We are holding NXG, purchased at 3.26. We are also holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46). We are holding a long term position in KGC at 6.07 and NXG at 2.26. We are long the XAU at 162.05 on 12/18/07. For examples in how "Ord-Volume" works, visit www.ord-oracle.com.
