Rydex Cash Flow Ratio
Simply put the Rydex Cash Flow Ratio measures the ratio of Rydex bear to bull type mutual funds that cash is invested in. Unlike sentiment guages, this indicator actually reveals the placement of the shee... uh.. investors at any given time. It is an extremely powerful tool that could have been used to nail the exact start of the 2003-2007 bull market. The following chart illustrates exactly when the last bullish investors capitulated and threw in the towel.
The next image is a long term chart of this ratio which sets up the context. We are now at the .75 resistance level that acted as support for the 2000-2002 bear market. It must be noted that this is an indication of extremely bullish sentiment!
Looking at the current short-term situation reveals just how over-bought the market still is. Also of note is the fact that once higher lows were not being formed any longer in 2007, a new, lower area of support was established by the ratio at around 1.05. This is key level to watch, for a capitulation-driven break, similar to the one the occured at the beginning of 2003.