Figure 1.

Rydex Bullish and Leveraged to Bearish and Leveraged/ daily

1) The ratio of Bullish and Leveraged to Bearish and Leveraged: 2.75

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) The more intermediate term indicators – figures 6 and 7 – have ended the week
at new all time extremes

2) The shorter term indicators – figures 1, 2, 2a, and 3 – remain extreme

3) In sum, these extremes in bullish sentiment are a bearish signal

4) But as you know, the markets have continued higher despite the extremes in
bullish sentiment – whether it be this data or any other

5) Typically, I would anticipate a reversal in the trend when sentiment becomes

extremely bullish as we have seen for the past 3 months

6) But as we have recognized a while back, anticipating a correction, without

some sort of technical signal, has been brutally difficult in this market

7) The price structure, which comes about due to the key pivot points in figures
5a and 5b, remains bullish for SPY and QQQQ

8) And as long as prices are above key pivots – or support levels – the trend is up

9) BUT and this is a big BUT, I am finding more and more reason to believe that a
reversal is closer than is widely thought

10) And I base this information on proprietary strategies that I have spoken about
on the TheTechnicalTake website

11) Specifically and at present, I have no strategy that would keep me in the equity
markets or suggest that I would want to add equity market exposure at this
juncture

12) Strategies that had me buying back in August, 2010 have exited long ago

13) The “this time is different” strategy went from November to January

14) And now I am getting a sell signal on my trend following strategy because of
strong trends in the CRB index, 10 year Treasury yields, and gold

15) All of these models – and there are 5 of them – would have me long the market
80% of the time

16) We now have entered the other 20%

17) So I ask: what is left to propel the markets higher?

18) The obvious answer and the one answer that we all know is the buyer of last
resort – the Federal Reserve courtesy of QE2

19) And this may be the only reason to be long the equity markets

20) So what does it boil down to?

a. The trend remains your friend, and the trend is bullish until the price
structure breaks down; it may be prudent to trail positions with a stop
loss to lock in profits

b. Anticipating a correction without a breakdown in the price structure is a

difficult proposition; however, if you must, strict risk control is
essential

c. Would I through caution to the wind and go long expecting the kind of
gains we have seen the last six months? No