This is an excerpt from the July 13, 2012 blog for Decision Point subscribers.
The Rydex Cash Flow Ratio gives an improved view of sentiment extremes by using cumulative cash flow (CCFL) into Rydex mutual funds rather than using the totals of assets in those funds (which we use for the Rydex Asset Ratio). It is calculated by dividing Money Market plus Bear Funds CCFL by Bull Funds plus Sector Funds CCFL. (For more detail click here.)
Currently, the Ratio is approaching extremes of its range that have often led to market tops. On the three-year chart below you can see where some Ratio tops are coincident with price tops, but there are other cases where Ratio tops precede price tops by weeks or even months. SInce other sentiment indicators that we track have not yet reached bullish extremes, it will probably be weeks before the next price top; however, the current Ratio reading should be considered a yellow flag.
For those interested in a closer analysis of cash flows and assets, we publish a daily report. Allow me to test the limits of your good nature by including a copy of it below. There are two sections, and the bottom section shows daily cash flows. Note by the ttals at the bottom of each section that the large inflows began on Tuesday.
