Mind The Market’s Internals: Rydex Ratio Goes Bananas


There is no need to say much to this, except to state that the Rydex ratio indicator has reached fresh heights of absurdity … almost 25 times more assets are now invested in bull & sector funds than in bear funds. This is a full seven times more than at the peak in early 2000, and frankly, at the time we thought we would never see such data points again. As we noted in a previous update already, the recent surge in the bull-bear ratio could only be achieved with sizable inflows – price gains alone cannot possibly explain it. We conclude that everybody was, or rather remains, absolutely certain that the market will rally into year-end and beyond, because that is what it almost always does.

Naturally, no-one has ever seen the market decline sharply in December (although a few major market peaks have indeed occurred in early December, but even that is rare), not least because the last time it happened was exactly a century ago, in 1914. At the time it was decided to simply close the exchange for a few months instead of risking even more carnage. Meanwhile, the “war to end all wars” was raging and laid the foundation for another, even bigger war.

First a look at the leveraged Rydex ratio (comparing assets in leveraged bull vs. leveraged bear funds). This particular ratio has just pulled back a bit from the record high recorded less than two weeks ago:


1-Leveraged Rydex ratioPulling back from the December 1 record high of 15 – which was approximately a million light years from every previous record except the one made at the end of 2013 – click to enlarge.



But the total Rydex ratio is really the piece de resistance though…we have left our annotations from last time unchanged, but the data are updated:


2-Rydex ratios go bananas-1
Rydex ratios: bear assets decline to a new all time low, and bull assets climb to nearly 25 times bear assets, another record high – click to enlarge.

Now, we keep marveling at this … just as we kept marveling for months at the record high net speculative long position in crude oil futures.

Lastly, here is the unadjusted (excl. dividends) chart of JNK, which seems to be suffering from the recent sharp decline in energy-related low grade debt (of which there appears to be a huge pile out there).


3-JNK-SPXJNK and the JNK-SPX ratio – click to enlarge.



Evidently, nothing can possibly go wrong – or can it? We wonder what oil traders were thinking a few months ago.


4-crude oil hedgersThe net hedger position in WTI crude oil (which is the obverse of the net speculative position). Speculators amassed ever greater long exposure, and for a long time nothing untoward happened – until it suddenly did – click to enlarge.



Charts by: StockCharts, SentimenTrader