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Go Where the Assets Aren't


Sometimes I just don't get no respect.

One of the reasons I have been bullish on the market for the past few weeks is because traders have been positioned extremely defensively, according to many measures that I follow.

One of those measures involves looking at where traders in the Rydex family of mutual funds are concentrating their assets. The chart below shows this concentration over the past couple of years.

Note that recently, they have moved 45% of total sector assets into the 25% of funds that are the most defensive (have the lowest beta). At the same time, only about 15% of assets are in the 25% of funds that are the most aggressive (have the highest beta).

When we see such extremes (either way), the market tends to do the opposite of where the greatest concentrations are, and vice versa. This type of behavior is one reason I have believed technology shares should benefit. Anecdotally, I'm starting to see more and more acceptance of this idea, which always makes me very nervous, but for now I'm letting things ride.

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No positions in stocks mentioned.

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