With the selling that has taken place over the last few months and the accelerated selling from last week, we saw some significant bearish levels reached on two sentiment indicators.
The first indicator that caught my eye was the Rydex Nova/Ursa ratio. To refresh your memory since it has been a while since I wrote about this ratio, the Rydex family of funds has the Nova Fund, which is a bullish fund and targets a return that is 150 percent of the return of the Standard & Poor’s 500. The Ursa fund is a bearish fund and targets a negative 100 percent correlation of the S&P 500.
The ratio is simply the assets of the Nova fund divided by the assets of the Ursa fund. The higher the ratio, the more bullish investors are, and the lower the ratio, investors are more pessimistic.
As of last Thursday, the ratio had dropped to 0.215, which is the lowest reading for the past year.
The second thing that caught my eye was the fact that the 21-day moving average on the Chicago Board Options Exchange Equity Put/Call ratio moved back above the 0.70 level last week, which is the first time since July that it has been above this level.
The market is likely to be very volatile over the next few months, or at least until something is accomplished toward the federal budget, but the sentiment indicators suggest that we could see a rally soon.
© 2013 Moneynews. All rights reserved.