Not So Fast

All the signs were pointing lower yesterday and the bulls still managed to pull the S&P 500 back to the flatline by the end of the day (The Russell 2000 was down 0.5%). After that, I pretty much gave up on the bears for the rest of the week.

However, when I started to go through the statistics of yesterday's rally something jumped out at me. The number of leveraged bears at Rydex fell to an all time low (I have access to 7 years of data at Rydex). In addition, the ratio of leveraged bulls to leveraged bears hit an all time high. While Rydex traders are a small subset of traders, they do give a decent idea of how traders are positioned. Rydex traders are positioned dangerously long.

There was an extreme amount of call buying yesterday on the ISE, but I wrote it off because the CBOE data did not confirm the call buying and it seems that some very large trades might have skewed the data. But now that I have seen the Rydex data, I am not sure I should be so quick to write off the ISE reading.

While most have written off the bears for dead and embraced the positive seasonality, it is possible that they will surprise everyone.


Chaos! said...

Where do you get the Rydex data?

Tsachy Mishal said... Its a pay site. I believe the data is available for free on the Rydex site.

Tsachy Mishal said...

I emailed them to see if I can post the graph but they have not responded yet.